German politics is tilting towards federalism

There is something in me that would prefer the members of Germany’s Social Democratic party to vote against a grand coalition with Angela Merkel’s centre-right Christian Democrats. A permanent coalition would end up strengthening the hard left and the hard right. We know that in a democracy, governments tend to produce opposing forces of equal or greater strength, given enough time. This would be Germany’s third grand coalition in 12 years. Better to end this sooner than later.

But there is also something in me that says that this particular coalition might actually do something useful. The chapter in the preliminary agreement on Europe is astonishing. The CDU and SPD accept the principle of a fiscal union for macroeconomic stabilisation, and transforming the European Stability Mechanism (ESM), the rescue fund, into an institution of the EU.

What genuinely surprised me was the initially muted response from the usual suspects on the right. The Eurosceptic backbenchers of the CDU and their Bavarian allies, the Christian Social Union, were unusually quiet. So were the economic commentators in the media. My only explanation is that they either did not read the section, or did not understand it.

The silence ended abruptly last week with an article by Otmar Issing in Frankfurter Allgemeine Zeitung. Mr Issing, a former member of the European Central Bank’s executive committee, rightly recognised the importance of the EU section in the agreement. As an economic conservative he was appalled by the ease with which Germany raised the white flag in the eurozone debate. Banking union, fiscal union, transfer systems — it could all happen very soon. It is what the conservative, ordo-liberal German establishment always fought against. I personally do not agree with their world view, but they are right that the preliminary coalition agreement matters.

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