Nein to ‘Transfer Union’: the German brake on the construction of a European Union fiscal capacity

Abstract

This paper argues that, on the development of European Union (EU)/Eurozone fiscal capacity German governments have consistently engaged in foot-dragging. Few German state elites have ever supported European fiscal capacity building beyond the EC budget. Following the outbreak of the Eurozone sovereign debt crisis, German governments agreed to the creation of financial support mechanisms only with reluctance. We see a case of continuity in German policy preferences driven by consistent ordoliberal and, specifically, moral hazard concerns. The important longterm change that we can observe relates to the growing importance for successive governments of avoiding audience costs driven by sceptical public opinion and the rise of a challenger party in German politics. German government support for a massive EU fiscal response to the economic crisis triggered by the COVID-19 pandemic demonstrates an exceptional policy position in favour of temporary financial mechanisms involving no fiscal transfers among member state governments.

Economic ideas, party politics, or material interests? Explaining Germany’s support for the EU corona recovery plan

“…And yet, like in previous instances, when specific ideational (ordoliberal) economic principles and material interests came into conflict, the German government gave priority to the latter (cf. Howarth & Schild, 2021).…”

“…In this respect, Germany underlined its longstanding position of limited national liability for EU fiscal resources and the need to secure broad parliamentary ratification and control for any common financial measures (cf. Howarth & Schild, 2021). Thus, there is little evidence that new economic ideas cut through widely in Germany.…”

“…What explains the differences, as well as continuities, in the country's approach to EU fiscal policy? Some scholars and political commentators have cited new economic ideas and changes in domestic party politics as key factors for Germany's supposed change of mind (Matthijs, 2020;Chazan, 2020), while others have invoked national material interests (Schoeller & Karlsson, 2021;Howarth & Schild, 2021). These different interpretations refer to broader academic debates about the actors and conditions determining member states', and the EU's, responses to pressing challenges such as moments of deep crisis (e.g., Csehi & Puetter, 2021;Schirm, 2018;Târlea et al, 2019).…”

Models of differentiated integration: past, present, and proposed

“…It may therefore result either in one (Eurozone-based) or several (policy-based) vanguard groups moving forward with multi-speed, multi-tier, and multi-menu forms of differentiation, or in uniform compromise solutions stimulated by the threat of exclusions. The latter outcome is currently prevailing, as the outcome of the long debates over a separate Eurozone budget and a common recovery package (Next Generation EU) clearly shows (Howarth and Schild 2021;de la Porte and Jensen 2021). Finally, many federalist groups propose further integration through a reform of the Treaties which would transfer additional competences to the EU, facilitate majoritarian decision-making, and streamline the institutional framework, but would not terminate the possibility of selective national opt-outs and differentiations.…”

La respuesta europea a la crisis de la covid-19: análisis jurídico del Next Generation EU y gobernanza e conómica del mecanismo de recuperación y resiliencia

“…1.5. Dificultades encontradas en el proceso de ratificación de la DRP y su relación con una posible «mutualización de la deuda» Se ha generado debate a cerca de si el artículo 9.4 de la DRP, al remitir al artículo 14.2 del Reglamento de Puesta a Disposición (RPD) 36 abriría el camino a la «mutualización de la deuda», es decir, la obligación de responder por la deuda asumida por otros Estados miembros.…”