Shrinking Merkel Down To Size Berlin Faces Austerity Challenge in Brussels

European Commission President Jean-Claude Juncker is challenging Angela Merkel in her de facto role as the most powerful leader in Europe. The election of Greece's Alexis Tsipras may help him in his fight against rigid German austerity policies.
European Commission President Jean-Claude Juncker welcomed new Greek Prime Minister Alexis Tsipras with open arms last week.

European Commission President Jean-Claude Juncker welcomed new Greek Prime Minister Alexis Tsipras with open arms last week.


Jean-Claude Juncker deliberately chose to deliver his warning in German. "Commissioners are proposed by the member states, but they do not represent the interests of their member state," the newly appointed president of the European Commission said as he introduced his team last September. In the event a commissioner confused "national and European policies," he threatened, he would move that appointee to another portfolio.

Germany's Commissioner Günther Oettinger paid little heed to the warning. On Jan. 8, he met in Hamburg with German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble to warn them that Juncker was planning to loosen the rules of the Stability Pact for the common currency zone. The three quickly agreed at the meeting that the development would not be in Germany's interest, and they agreed to thwart Juncker's plans.

Euro Crisis Shifted Balance of Power

It had been clear for some time that Europe's most powerful leader would eventually clash with the head of the European Commission, the EU's executive, but it happened earlier than some might have expected. Juncker's commission hasn't even been in office for 100 days yet and conflicts between Berlin and Brussels are already surfacing. Policy differences are at the forefront, with Juncker feeling that Merkel has bound Europe to austerity policies for too long. But the conflict also touches on a more fundamental question: Who holds the power in Europe?

Merkel's ascendency to the most powerful woman in Europe is rooted to a large degree in the euro crisis, which shifted the balance of power from the European Commission to the European Council, the body representing the leaders of the 28 member states. As the crisis heated up, leaders gathered regularly to hold crisis summits under the auspices of the European Council in order to save the common currency from collapse. The decisions fell to the European Council because it was European leaders who had to make money available for the bailout packages. Given that Germany had the most money to offer, Merkel quickly became the most important player.

Juncker now wants to level the playing field again. He's the first Commission president to have campaigned as a leading candidate in European Parliament elections to head the commission, and he sees his rebellion against Merkel as an act of emancipation. He believes that the man backed by European Parliament should be at the European helm rather than the woman backed by money.

Growing Tensions

Relations between Merkel and Juncker have been tense for some time now. Juncker, a Christian Democrat like Merkel, previously served for almost 19 years as the prime minister of Luxembourg. But Merkel considers him to be more like a center-left Social Democrat than a conservative and she initially sought to prevent him from becoming the leading candidate for the European People's Party, the alliance of Christian Democrats at the EU level. But she ultimately failed. Now, she feels her concerns and biases towards Juncker have all been confirmed.

Merkel's people, for example, would have preferred Juncker to greet newly elected Greek Prime Minister Alex Tsipras with the same cool practicality adopted by her own government that day. After all, didn't Tsipras win his election with an ugly campaign against the Germans? And did he not stoop to the level of accusing Merkel of conducting a "social Holocaust" in Greece with her austerity policies?

The message in Berlin after Syriza's victory was that Europe should make no concessions to Greece. Volker Kauder, head of Merkel's conservatives in German parliament, said that savings measures would still need to be monitored by the Troika, made up of the European Commission, the European Central Bank and the International Monetary Fund. He said allegations that the Troika was not democratically legitimate were "pure nonsense."

Juncker, though, argued that a rapid return by the Troika could be viewed by the Greek people as a "provocation." Juncker doesn't, of course, support all the demands being made by Greece's new prime minister. He has been in the politics business long enough to know how quickly hotheads can cool down once they are confronted with political reality. But as he challenges Merkel's supremacy, Tsipras' quick temper could prove useful to Juncker.

Indeed, Juncker isn't afraid to share a bit of fatherly advice with Tsipras. When Tspiras' finance minister, Giannis Varoufakis, used coarse language a week ago Friday to demand that the Troika never again return to Athens, investors reacted nervously. In response, Tsipras contacted news agency Bloomberg to circulate the news that Greece, of course, was trying to find an amicable solution with its lenders. In many European capitals, officials were surprised that Tsipras' had suddenly found the ability to use the language of diplomacy. One person it didn't surprise, however, was Juncker, who had coordinated the statement with Tsipras.

When the Greek prime minister then traveled to Brussels last Wednesday, Juncker greeted him as if he were an old friend, giving him a peck on both cheeks. Juncker then took the Greek leader by the hand and led him to the executive floor of European Commission headquarters.

Is Merkel Focused on German Interests?

Although Tsipras is a little too impetuous for Juncker's taste, he does share his basic wish to shrink Merkel down to size. Juncker wants to build a different Europe and his thinking is infused with a mixture of nostalgia and wistfulness for the Helmut Kohl era. Juncker felt that Merkel's predecessor had been considerate, especially when it came to addressing the concerns of smaller EU member states. Nor was he ungenerous when it came to assisting weaker countries. He feels that Merkel thinks too much about Germany and too little about Europe. In Juncker's opinion, there's a lot to support that suspicion as well.

During the election, the word "solidarity" appeared prominently on one of Juncker's campaign signs. Juncker thought it was a good idea, especially given that he wanted to attract voters in Southern Europe who have suffered under the German chancellor's austerity policies. To Merkel's ears, though, the term "solidarity" sounded like code for the idea of euro bonds, securities issued jointly by all euro-zone member states. Merkel loathes the idea given the amount of liability it would create for Germany. Juncker's slogal so incensed officials with Merkel's Christian Democratic Union (CDU) party that they almost refused to allow him to make a campaign appearance in Berlin.

Juncker may not be uttering the word euro bonds any more, but his initial moves in Brussels have gone down well in countries that would like to spur growth through new borrowing. In November, for example, he elected not to send France's draft budget back to Paris for improvements, despite the fact that it doesn't fulfil Stability Pact rules and envisions new borrowing that is far too high.

"Countries don't like this lecturing coming from Brussels," Juncker said, justifying the decision. "So now they are proposing themselves what they intend to do, and that's, I do think, a more respectful way to deal with countries and to deal with national parliaments." He might as well have just said that Merkel should finally stop making rules for others.

Juncker has displayed similar self-confidence in his new interpretation of the terms of the Stability and Growth Pact. In June 2014, concurrent with the nomination of Juncker as Commission president, the European Council voted in favor of a "growth-friendly" and "differentiated" approach to fiscal consolidation.

Defanging the Stability Pact

It is a decision that Juncker frequently evokes and it quickly became clear how Juncker intended to use the order: He wanted to take the teeth out of the Stability Pact. The pact limits any new borrowing by governments in the euro zone to a maximum of 3 percent of gross domestic product. Juncker wants to change the rule into a non-binding benchmark and he is backed by both French President François Hollande and Italian Prime Minister Matteo Renzi. For Juncker, the announcement of reforms alone should be sufficient for the suspension of the pact's rules and to give the country violating the deficit rules more time to get its budget under control.

Juncker had originally intended to present his plan in November, but he ran up against resistance. Several countries, including Germany and the Netherlands, intervened to stop him. German Commissioner Oettinger also mobilized his forces. In December, he invited other colleagues with conservative parties to a winery in Durbach, Germany. The wine tasting session was merely a disguise for the attempt to organize a rebellion against Juncker's plans.

Merkel also intervened. A short time after her crisis meeting with Oettinger and Schäuble in early January, she called Juncker and demanded that, at the very least, the EU must insist on a greater commitment to reform efforts by countries with excessive deficits. Commission President Juncker remained unswayed.

At the crucial meeting of the Commission on Jan. 13, Juncker tried to push it through using a trick. Knowing that any loosening of the pact would not be a sure-fire success, he waited until the morning of the meeting before circulating his paper to the other commissioners, an attempt to prevent his detractors from organizing against his plans.

The plan only worked in part. A number of commissioners raised objections, criticizing that Juncker's proposal could create the impression "that the member states enjoyed room for manoeuvre enabling them to avoid certain rules," meeting notes state. In the end, Juncker and his opponents reached a compromise. Oettinger prevailed in his insistence that, rather than merely announcing reforms, countries with excess deficits like France or Italy would also be required to submit a plan that had either been approved by the government or by parliament.

Still, Juncker did succeed in making it easier to circumvent the rules of a Stability Pact that has already been violated frequently in the past. Merkel wasn't pleased. After the meeting in January, she called Juncker to express her displeasure. She declared that it was unacceptable that she had only learned about an important policy change like that at the last minute.

Merkel Must Expect Discomfort

The manner in which the telephone conversation proceeded speaks volumes about the relationship between the two. "My commissioner," Merkel complained in reference to Oettinger, "my commissioner only received the paper on the morning of the meeting." "Why your commissioner?" Juncker coolly responded. "That is my commissioner!"

Angela Merkel: Many European leaders are waiting for the opportunity to put the German chancellor in her place.

Angela Merkel: Many European leaders are waiting for the opportunity to put the German chancellor in her place.


Merkel must now prepare herself for a few uncomfortable years in terms of European policy. The European Commission is expected to make a decision at the beginning of March on whether Belgium, Italy and France will face sanctions for their excess budget deficits. It is also expected to assess reform efforts in those countries. Oettinger has a clear opinion on the matter. He feels that the French president has only paid lip service to reforms. "Hollande has an obligation to deliver," he says. "So far, French reform efforts have fallen far short of the target."

But it seems unlikely that Germany will prevail in the end. Juncker is eager to demonstrate his determination once again -- and he knows that most European leaders are just waiting for the opportunity to put Merkel in her place.

In May, Juncker plans to present a paper on the reform of the economic and currency union together with European Parliament President Martin Schulz, European Central Bank Head Mario Draghi and European Council President Donald Tusk. It is widely accepted that the paper will plead for additional powers to be transferred to the EU level. The first ideas are to be presented at a summit of EU leaders in Brussels later this week.

European Parliament President Schulz is a center-left Social Democrat, he is acting in concert with the European Commission president. He sees it as his job to close the ranks between the European People's Party and the Social Democrats in to ensure that a majority will be found for Juncker's initiatives in parliament.

Juncker's Limited Vulnerability

Thus far, Juncker has experienced little headwind in parliament. Indeed, the only area where Juncker still remains vulnerable is his past as prime minister of Luxembourg. The publication of the Lux-Leaks papers last November made it clear that multinational companies were able to enjoy massive tax breaks in Luxembourg during Juncker's term as head of government there.

As such, Juncker was furious when 17 German conservatives called for an investigation into Luxembourg's tax practices. "Why are your people in the European Parliament voting against me?" Juncker asked the chancellor.

In the end, though, Juncker also managed to prevail on this issue. With the aid of an argument prepared by parliament's legal service, Schulz prevented the creation of an investigative committee against the commission president.