Does Scholz Want a Federal EU with Community Debt?

The outgoing German Chancellor Angela Merkel was celebrated with a military taps at the end of her 16-year term in office in Berlin. It remains to be seen to what extent the traffic light coalition of Social Democrats, Liberals and Greens, which will be in power in Germany from Wednesday, will set the pace in the EU. The coalition agreement contains some bold statements in this regard. The EU is to develop into a federal state. A constitutional convention is to prepare the treaty changes for this on the basis of the ongoing citizens' debates on the future of Europe. The unanimity rule in the common foreign and security policy is to be dropped.

These are all announcements which, of course, are hardly capable of gaining a majority in the EU at present.

Especially in Central and Eastern European countries, which strictly reject a further transfer of competences to the EU institutions, the new German government will trigger resistance. Whether the Franco-German axis can once again become the motor of the EU's further development also depends on the outcome of the presidential elections in France next April. If France moves to the right, this will make cooperation with Berlin more difficult.

The German Greens have won the day when it comes to investments in climate protection. These should also be at the top of the agenda in the EU. On the subject of asylum and migration, the right of residence for young, well-integrated people is to be made easier. There will be more money for counselling, but also for the border agency Frontex. Deportations are to be made easier, asylum procedures are also to be available outside the EU - the traffic light is flashing yellow because of the Liberals.

Last Thursday, during her inaugural visit to Brussels, the new Foreign Minister Annalena Baerbock (Greens) called for changes in asylum policy, proposals for a solution to the border conflict with Belarus and peace initiatives for Ukraine. There she warned Russia against any invasion and threatened with "severe economic and political consequences".

Her proposal to renew the cooperation of the "Weimar Triangle" with France and Poland seems somewhat strange, considering the EU's current conflicts with Poland over fundamental rights.

In France and in southern EU states, the new government in Berlin is expected to further soften the EU's strict "Stability and Growth Pact", which was only suspended because of the Corona pandemic. For the new German Chancellor Olaf Scholz, common debts are a condition for the creation of the United States of Europe he has envisaged as a distant goal. FDP leader Christian Lindner, who campaigned against a debt union, is already more willing to compromise as finance minister-designate: Germany must indeed ensure stability, he explained. "On the other hand, we also have a responsibility to ensure that this currency area stays together, that there are investments in other countries as well and that there is political stability." Germany cannot therefore behave like one of the "frugal 5" states - Denmark, Finland, the Netherlands, Austria and Sweden - which categorically reject common EU debt and any change to the euro debt rules.

The EU Commission has also already initiated a debate on reforming the Stability Pact. In addition, France and Italy are pushing for the 800 billion euro Corona aid pot to be developed into a permanent EU investment budget. The traffic lights avoided a clear commitment: "The Stability and Growth Pact has proven its flexibility," it says, implying room for change." On its basis, we want to ensure growth, maintain debt sustainability and provide for sustainable and climate-friendly investment. The further development of fiscal policy rules should be guided by these objectives to strengthen their effectiveness in the face of the challenges of the times."

The German daily "Die Welt" already sees this as the path to a debt union: "Italy, France, Spain and Belgium are calling for investments in climate protection and digital to be excluded from the calculation of national deficits in future." Relaxed debt rules for more investment would be covered by the wording in the coalition agreement. "This is a classic formulaic compromise that leaves the door wide open to a softening of the Stability and Growth Pact," complains Markus Ferber (CSU), who represents the Christian Democrat EPP Group in the European Parliament's Economic and Monetary Affairs Committee.

Austrian economist Gabriel Felbermayr, new head of the Vienna-based Institute of Economic Research (WIFO), says the traffic light government programme lacks proposals for reforming the Eurozone, which could prevent a new euro debt crisis in the event of rising interest rates. "If the promised investment boom comes up against the realities of an ageing society and omnipresent shortages, then there is a threat of overheating with inflationary tendencies throughout Europe."

Crucial to the EU's near future is the new German government's course on the rule of law vis-à-vis Poland and Hungary. EU Commission President Ursula von der Leyen has frozen billions in aid from the Corona reconstruction fund here and attached conditions. Recently, she had letters sent to Warsaw and Budapest, which can be seen as the preliminary stage of a procedure that also allows for the freezing of regular budget funds. This is why another sentence in the traffic light agreement is important: the Commission's proposals for the disbursement of Corona aid will only be accepted "if conditions such as an independent judiciary are secured". In fact, the states have the last word on the EU budget and the disbursement of the subsidies.

The first counterattacks have already come from Poland, for example from the Polish Minister of Justice, Zbigniew Ziobro, leader of the small party "Solidary Poland". The new German government wants to become the "disciplinarian" of the EU, which Poland will not accept, just like the "colonial rule of the EU".

In Brussels, particular attention was paid to the last page in the coalition agreement.

There, the "traffic light" agreement guarantees the CDU president of the EU Commission, Ursula von der Leyen, a second term in office. Only if this office is no longer held by Germany may the Greens fill the German commissioner post in 2024.

By Otmar Lahodynsky Honorary President of the Association of European Journalists (AEJ) and former Europe editor at the news magazine "profil".