The Eurogroup would not want to start from here
In his latest 'Spotlight on Europe' column, Oliver Hartwich looks at the signals sent by the surprise election of the Irish Finance Minister to head the Eurogroup
It could have all been so nice. At their meeting last Thursday, Eurogroup finance ministers should have elected Spain’s economy minister Nadia Calviño the group’s new head.
If you are unfamiliar with the EU’s machinery, the Eurogroup is the informal body representing the members states using the euro currency. It has no strong legal basis let alone competence, which naturally for Europe ensures its immense political power. It is the Eurogroup where serious decisions about sovereigns are made.
But back to Senora Calviño.
Electing her would have ticked a few boxes. First, she represents a centre-left government just as Mário Centeno did, the outgoing Eurogroup president and Portuguese finance minister.
Second, she comes from a Southern European economy (again, just like her predecessor). Third, she had the support of both France and Germany, the two Eurozone heavyweights. Fourth, as a former senior civil servant of the European Commission, she has excellent connections and inside knowledge of Brussels. Fifth, as German chancellor Angela Merkel suggested, it was time to have a woman in that role.
And sixth (as if it matters), Calviño even has an economics degree.
Within the statics and logic of the European Union, electing a Spanish finance minister would have made complete sense. Simply because it would not have rocked the boat.
Apparently, Calviño had even secured a majority of the 19 Eurozone finance ministers. At least that is what she thought before the meeting.
It is the worst possible start for Germany’s turn at the presidency of the EU for the second half of 2020.
After the meeting, however, and to everyone’s surprise, Irish finance minister Paschal Donohoe was elected President of the Eurogroup instead. And Calviño complained bitterly: “We had 10 votes secured. Someone didn’t do what he said he was going to do.” Unfortunately, that’s how secret votes sometimes play out, poor diddums.
Calviño was not the only one disappointed. German finance minister Olaf Scholz was so indignant about Donohoe’s election, he forgot to congratulate him on his election. Scholz even said that outgoing Eurogroup President Centeno would be missed (even though Centeno rarely made any serious contributions over his term).
No wonder Scholz was the most disappointed about the Eurogroup’s new President. It is the worst possible start for Germany’s turn at the presidency of the EU for the second half of 2020.
The German presidency coincides not only with the worst economic crisis in Europe for decades. It also comes at a time when centrifugal forces within the Eurozone strengthen. As Covid-19 ravages the continent, it puts the stability of the Euro currency to the test.
The election of Donohue sends the opposite signal. He comes from the political centre-right. As a fiscal conservative, he has been called ‘Prudent Paschal’ in his local media.
For Germany and France, having a Southern European finance minister at the helm of the Eurogroup would have signalled to the markets that Southern Europe is, well, not safe but at least safer. It would have demonstrated Europe’s commitment to the euro and to its weakest members.
The election of Donohue sends the opposite signal. He comes from the political centre-right. As a fiscal conservative, he has been called ‘Prudent Paschal’ in his local media. His Irishness makes him almost by definition against any initiatives to limit tax competition within Europe. The last thing he wants are new EU taxes against multinational corporations with operations in the EU – or indeed in Ireland.
Donohue’s positions aren’t wrong – they are just diametrically opposed to what the EU Commission in Brussels, some EU member states and the European Central Bank will want. But at least Donohue’s election demonstrates the rift now running through the EU. Or several rifts.
On a formal level, it shows that the smaller EU members do not want to be dominated by larger ones. Because Spain, Italy, France and Germany all openly supported Calviño, it was an invitation to the small Eurozone members to make their presence felt. With one vote each, Malta and Cyprus mattered just as much as France and Germany.
On a substantial level, the choice between Donohue and Calviño was much messier. If it was only about policy preferences, Germany should have sided with the Irishman. Since the start of the Euro crisis in 2009, Germany always pursued policies much aligned with those preferences exhibited by ‘Prudent Paschal’.
However, Berlin feared it had overdone the prudence and austerity bit. Alarmed by Southern European opinion polls showing weakening support for the EU, Germany first caved to the French idea of the €750 billion Covid-19 Recovery Fund and then openly campaigned for Calviño to underline the Eurozone’s commitment to its periphery member states.
“How do you get out this crisis?” – “If I were you, I would not start from here.”
But Donohue’s surprise election shows not every Eurozone member shares Germany’s new-found enthusiasm of using domestic taxpayers’ funds to prop up struggling European economies.
The great irony is that Donohue now gives Germany a Eurogroup President who embodies Berlin’s own policy inclinations like no other. And yet, the new president will not help with Germany’s goal of keeping the Eurozone united during its stewardship of the EU this year.
Whatever one makes of Donohue personally, governing the Eurozone will not be any simpler since too many differences exist between the 19 countries using the euro currency.
Perhaps it is a good thing that the Eurogroup has no proper legal standing or competence. It will be up to Europe’s heads of state and governments that will eventually have to clean up the mess of the economic crisis that Covid-19 has caused.
Or, spinning the old Irish joke: “How do you get out this crisis?” – “If I were you, I would not start from here.”
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