The issue of euro-zone bailouts has frequently divided the German business world. "There is no serious alternative to the common euro" claimed an advertising campaign that ran in 2011 and featured the heads of several companies listed on Germany's DAX blue-chip stock exchange index. But the campaign triggered open criticism from representatives of Germany's Mittelstand, the small and medium-sized companies (SMEs) that make up the backbone of the German economy. The Munich-based Foundation for Family Businesses in Germany and Europe reacted by demanding that "exit and expulsion from the currency union must be possible."
Two years later, a survey of German SMEs conducted by Commerzbank, Germany's second-largest bank, shows that they continue to view the euro zone with great skepticism. The survey, which will be published on Wednesday, polled 4,000 Mittelstand companies with annual sales of at least €2.5 million ($3.3 million).
The survey also shows that Germans are skeptical about euro-zone's growth. Eighty-eight percent of them agreed with the statement that the Germany needs to think about ''Alternative to euro'' to adapt to the limits on growth. There is growing skepticim about euro that might reflect on German elections this year.
However German Chancellor Angela Merkel, whose's nicknamed ''TINA'' expects to react to these findings with the same slogan she has been using since : '' There Is No Alternative''. ‘If the euro fails, Europe will fail’ is her most cited quote on the issue. But even if the eurozone has to be kept together ‘at all costs’, Germany wants to keep these costs as low as possible.
Mrs Merkel and the German government, including large parts of the opposition in parliament, want to make sure that:
a. The eurozone does not break up.
b. A fully-fledged ‘fiscal transfer union’ with Eurobonds or other forms of uncontrollable mutualisation of debt can be prevented.
c. A fully-fledged ‘inflation union’ with unlimited monetisation and ‘inflating away’ of sovereign debt does not occur.
So far, the first goal could be achieved without fully giving up the other two. The emerging politics within the EU and the European Central Bank make it quite likely that Mrs Merkel’s magic triangle of goals and principles may not stand the test of time. Mrs Merkel made a very strong commitment on her stance on Eurobonds when she said ‘not as long as I live’. Politically, the most attractive option seems to be the third - inflating away the debt.
Although inflation-angst is still very high among German citizens some inflation can be very handy for politicians in Germany too. It decreases the real value of sovereign debt and, it increases tax revenues by ways of ‘cold progression’. This means that in a system of progressive taxation, taxes rise faster than real-term incomes when tax-rates are not adjusted for inflation. The ‘monetary’ way out of the problems is very damaging economically in the long run, but it has enticing political, short-term, advantages. It reduces real debt and increases tax revenue - without affording any parliamentary decision.
As the Cyprus bail-out has shown, the willingness of German political parties and voters to give further fiscal support to debt-ridden foreign states is nearly exhausted. With the monetary ‘solution’, the blame can be shifted to the ECB.
The founding partnership of the EU - the French-German ‘axis’ - no longer holds the EU or even the eurozone together. The differences between a German and a French philosophy have again become apparent with the election of President Francois Hollande. The German government - and informed public - believes that Mr Hollande pursues a socialist ideology in many areas which is damaging the French economy - and the stability of the eurozone. The French government’s decision to lower the retirement age from 62 to 60 years demonstrates a clear lack of will to balance its budget. This did not go down well in Berlin at a time when the German retirement age was being raised from 65 to 67.
Germany’s insistence on austerity and market-led competitiveness are perceived in France as an abuse of newly-gained German domination in Europe. And what might annoy the political class in France even more is a rather new development - a German-British rapprochement. British Prime Minister David Cameron visited Angela Merkel near Berlin with his family on April 12, 2013. He was on a difficult mission, to convince EU leaders, and especially Mrs Merkel, that substantial reform of the EU is both desirable and possible.
German elections take place on September 22. It is far too early to predict the outcome. But one thing seems quite likely - that Germany’s chancellor will still be in place. Even if her coalition partner is unable to repeat its strong result from four years ago, another coalition is not as preposterous as it seemed a year ago.
These are the comfortable alternatives for Angela Merkel: to pragmatically and strategically form different coalitions both nationally and on the European stage. The uncomfortable choice for ‘there is no alternative’ TINA Merkel however, remains on how to solve the eurozone’s problems.
By Guylain Gustave Moke