Ironies of fate. The great power of the euro, Germany, which managed to contain its ideological temptations in 2012 so as not to let the common currency collapse in the midst of the European debt crisis, called the workers of the South “lazy”, imposed draconian liberal prescriptions on the rescued partners, demanded adjustments that delayed its return to European dynamism and controlled with men in black THE troikas which has carefully overseen austerity, is mired in an industrial paralysis that has plunged it into a two-year period of anemic GDP, torn between red and black numbers.
More than a decade later, without Angela Merkel – nor her omnipresent finance minister, the Christian socialist of the Bavarian CSU Wolfgang Schäubel – and under a legislature with a traffic light cabinet headed by the social democrat Olaf Scholz with the liberals and the greens, and with the PIGS – Portugal, Italy, Greece and Spain, according to the pejorative acronym launched by Financial Time that Berlin has appropriated – pulling the euro wagon, one character refuses to disappear from the European arena: Mario Draghi, frowned upon in Berlin.
Then, as ECB president, the Merkel cabinet put Draghi in the spotlight for his trillion-dollar sovereign and corporate debt purchase program (Quantitative Easing). In addition to his persistence in keeping interest rates close to zero for more than five years and for his last message, in 2019, before handing over monetary authority to Christine Lagarde, on the need to mutualize debt, which angered Schäubel. The finance minister blamed him “50%” for the rise of the neo-Nazis of Alternative for Germany (AfD) for having activated the stimulus measures that ultimately saved the euro.
Now, the criticism of Draghi is focused on his view on the competitiveness gap, commissioned by German conservative Ursula Von der Leyen during her term as head of the European government. “The Berlin Wall still represents it,” analysts agree. With the finance chief, liberal Christian Lindner, as the new duelist.
Berlin Orthodox Christian criticises EU funds
“I am very skeptical about Draghi’s approach to debt,” Lindner warns, adding that “the idea that ‘Germany should pay for others’ ‘cannot be considered a master plan’.” Scholz’s minister also does not like the 800 billion euros per year that the “urgent” industrial reconversion would cost, focused on accelerating digitalization in the age of artificial intelligence and certifying net zero CO2 emissions before any other latitude on the planet. The change of political color in Berlin does not change the German scenario of European cinema: the measures Keynesian They attack liberalism and austerity because of their billion-dollar costs, borne by Germany.
Even though the times require urgent action and Europe wants to play a leading role in the geostrategic battle between China and the United States for the global technological scepter, the relocation of its industries and the control of manufacturing supply centers and critical raw materials that are being configured both in subsidies, preferably, towards the renewable energy and innovation sectors. In a context where globalization is wavering to the point of glimpsing a fracture of trading blocs, one Western, led by Washington and another, Eastern, defended by Beijing, which Draghi considers the key to understanding his urgent and enthusiastic advice in favour of the industrial reconversion of the EU.
Perhaps it was because of this conviction that he spared no argument in defeating the Berlin attacks.
As a precaution, as if waiting for the German response, he specified that the resources intended for European reindustrialization must be accompanied by joint debt issues (eurobonds), despite German resistance. “Make no mistake,” he anticipates his detractors, because “investments require that all European mechanisms be activated and that the resources be massive.” Otherwise, “the competitiveness train with the United States and China will be definitively lost,” he added.
But Lindner’s neoliberal soul does not accept this interventionist recipe. Promoter in the federal cabinet of a tax reduction of 23 billion euros in personal income tax that would come into force in 2026 to mitigate the effects of inflationary pressures and bring the European power out of its state of hibernation, and ideologue of a restricted budget for 2025, with which he intends to return to a discipline of public accounts that contrasts with the stimuli provided to their industries by high-income countries and large emerging markets, the Minister of Finance has become the worthy heir of Schäubel or Theo Waigel.
The imbalance in German accounts
Although the numbers are torticeros. The deficit will increase by 20 billion euros in 2025, the debt by another 8 billion and tax collection will stop receiving 42 billion euros until 2028, according to its own official calculations that, according to Lindner, “leave no other option than adjustment and the burial of budgetary indifference. In line with its position in Europe in 2023, where it has become a champion of the return of the Stability Pact in the EU without assuming – as promised – critical readings of economic policy during the credit collapse of 2008 and the great pandemic of 2020. Despite the benefits that the collective debt issues implemented exceptionally have caused on the national deployments of the Next Generation funds or the SURE program against unemployment.
“Draghi’s message is aimed at waking up the European economy,” says Gilles Moec, chief economist in the research department of the insurance company AXA. “We can compete with the United States and China, we know how to do it and its implementation is in our hands and in our minds, even if we have to come out of lethargy and take on or implement ideas like Draghi’s.” Above all, if the euro’s higher GDP flirts with recession and its industry continues to be paralyzed, France and Italy remain warned of sanctions in the event of excessive deficits.
Draghi’s slogan of moving towards greater fiscal integration in the Union and stopping playing “two-speed Europe” is another clear message to Berlin. “There is no doubt that Draghi’s recommendations have a lot of merit” to impose common criteria on countries like Germany, even if their adoption “on a large scale is unlikely”, believes Jamie Rush, chief European economist at Bloomberg Economics. Among other reasons, because the Europe of progress has lost momentum in the face of “the influence of internal affairs, with national-populist movements that are not going exactly in the same direction as the former Italian prime minister”, underlines the chief economist of UniCredit, Marco Valli.
Treatment of the European economic disease
Marcel Fratzscher, president of the DIW Institute, one of Germany’s most prestigious economic research centers, agrees, calling federal unity between the government and the more moderate opposition “a significant part of competitiveness and prosperity,” according to Draghi. “These demands concern the strengthening of European institutions and greater integration of the internal market,” which implies “fewer doses of nationalism,” which “should be taken into account in the German political arena.”
Fratzscher saved Draghi’s latest warning this week: “Or this [una reindustrialización forzosa pero ineludible] or a slow agony. Like Tanja Gönner, former CDU MP and now head of the BDI industrial lobby, who appealed to the consensus of democratic forces and demanded an injection of investments that would guarantee the economic security of Germany and the EU. Even if one of the dissenting voices came from her colleague Thilo Brodtman, her counterpart from the machinery industry. According to him, “doubts remain as to whether the combination of debts and the massive disbursement of public funds in Europe is the right way out.”
Clemens Fuest, director of the Ifo Institute, believes that Draghi’s diagnosis “is the right one” and that Lindner’s objections are necessary “at this stage”. Until Berlin “establishes a plan to stimulate growth and increase competitiveness with major reforms that do not require additional money” in the labor market and to boost productivity.
At Deutsche Bank, an entity that Draghi helped to survive after being declared for five years by the IMF as an entity with “systemic risk”, he anticipates that the summer will not lead to the German take-off either, that the factories “are still subject to systemic risks” in a process of low investments “and that the consumer remains “skeptical” despite having increased his purchasing power for the first time in three years.
