German Economic Governance and the Eurozone: Misguided Leadership?

Introduction: The Eurozone crisis is more than the sum of the economic crises of some of its member economies. It is simultaneously a crisis of the institutional setting of the Eurozone, as well as of its underlying economic-political architecture and mode of regulation. Moreover, the Eurozone crisis fundamentally reshaped power relations between its members in ways that will affect not only the Eurozone but also the overall project of European Integration. For the crisis transformed a post-hegemonic project, where all members have equal rights and obligations practically overnight into one of a hierarchical club that required political and economic leadership from a few leading countries. For a while it seemed that a particular incarnation of the French-German axis – effectively Merkozy – would successfully manage the crisis. However, rather than designing a coherent crisis strategy, the Merkozy axis was only able to come up with weak bilateral policy compromises that failed to end the crisis. The more the crisis was prolonged, the more it became clear that the political space of the Eurozone started showing cracks. The electoral victory of Syriza in Greek elections in 2015 highlighted this political division, at least to some degree. With the French-German motor stuttering, Germany emerged as the key actor and, more importantly, the key creditor in the increasingly salient creditor – debtor- axis that came to dominate the further unfolding of events. Yesterday’s poster-child of ‘Eurosclerosis’ was all of a sudden in strong demand as a key crisis manager of sorts. Has the Eurozone turned into a Germany-zone? A prominent chorus of critics complains that a new German dominance has emerged in Europe to fundamentally change the principles of the European integration project . In contrast, I argue that the German government has not changed its overall policy approach towards Europe at all. It has always acted in Europe from a domestically deeply entrenched policy path and continues to do so. Moreover, contrary to assertions of Germany ‘hegemony’ in Europe, I note that, rather than providing a coherent ‘regional public good’ in a hegemonic manner, Germany acts like a dominant leader that uses its power to shape agendas and to veto alternative strategies in order to safe the Eurozone. Paradoxically, Germany’s deeply path dependent actions were critical for driving the Eurozone ever deeper into a political and economic configuration that ultimately risks the sustainability of the Eurozone in its current form . The result could be a Eurozone stuck in a situation of low growth, high unemployment, deflation/’disflation’, and political division that may result in a shrinking of the Eurozone