What do recent events mean for the EU and economic policy in the eurozone ? (part II)

Part II: Mr. Steinbrueck's candidacy for German chancellor and economic policy in the eurozone

In my last post I argued that the alternative to a dissolution of the euro project is a 180° turn in economic policy for the eurozone by a new German government without Merkel. Today, I shall try to assess the likeliness of such an alternative with Mr. Steinbrueck (SPD) as the next German chancellor.

Merkel's October 18th Regierungserklärung (government policy statement) in the German Bundestag and the verbal blows that followed by chancellor candidate Steinbrueck provided the first indication of Steinbrueck's views and visions for the euro project as well as an idea of his economic policy approach toward Greece and the eurozone.

Steinbrueck started with a scathing critique of chancellor Merkel's mishandling of "the special German responsibility for Europe" and in particular of her failure to reprimand the "mobbing" of Greece and the brazenly chauvinist comments about the Greek people and other Southern Europeans by some of her coalition members, namely Mr. Rösler (economics minister), Mr. Söder (leading member of the Christian Social Union), Messrs. Dobrindt and Döring (leading members of Germany's liberal party FDP). Steinbrueck's stinging remark "You want to ride on the wave of public opinion that feeds on the ressentiments about Germany as the paymaster of Europe, but at the same time you want to avoid to dive into this wave...." further twisted the knife in the body of Merkel's damaged political standing, and his final statement served the knock-out blow: "Neither Mr. Kohl nor one of his predecessors would have allowed to use a European partner for political aims." 

Wow ! Hallelujah, Mr. Steinbrueck !

So far, so good. Yet, while Steinbrueck's attack of chancellor Merkel's coalition's treatment of Germany's eurozone partners was nothing less than brilliant, his recipes for economic policymaking in Europe were disappointingly unspectacular: banks shall fund future bail-outs out of their own bank-financed rescue fund; the need for a growth and employment pact and "a new social balance" in Europe; a desire to "export the successful mechanisms of the German social market economy" are all ideas that chancellor Merkel would approve of as well. 

Is this well-behaved economic policy approach an indication of Steinbrueck's secret wish to keep open the option of a second 'grand coalition' with Merkel, despite his rhetoric otherwise ? Most likely. As likely as the possibility that his economic views are really not very different from Merkel's. Let's not forget that it was Mr. Steinbrueck who supported (and still vehemently defends) the employer-friendly austerity measures of Agenda 2010 which now serve as the blueprint for labor market reforms in Greece (see my post on this issue). Let's neither forget that he supported the liberalization of Germany's financial markets during his time as finance minister of the first grand coalition with Merkel from 2005-2009. In a recent interview, when Mr. Steinbrueck was asked why he had supported finanical liberalization in Germany, he responded that his actions had been part of the Zeitgeist then. The question for me is: "Would I want a chancellor who follows the Zeitgeist or one who will question the Zeitgeist and make a decision based on what's best for the German people?" I think, the answer is obvious. 

During that same grand coalition with chancellor Merkel, Mr. Steinbrueck initially refused any economic stimulus to overcome the Great Financial Crisis of 2007/2008, provoking economic Nobel Prize winner Paul Krugmann to call him a bonehead. In 2009, Steinbrueck finally succumbed to international demands for stimulus policies in the largest European economy, but only grudgingly. Three years later, while the whole world attempts to deleverage Steinbrueck calls for prosperous Germany to serve as the debt- and cost-busting competitiveness model, thus greatly endangering a recovery from the euro crisis and increasing the risk of global deflation and, in the worst-case, a global depression.

In the only European economy that has the funds to balance out the deleveraging in other eurozone countries,   Steinbrueck calls for more fiscal austerity, just as the IMF presents new evidence of a larger than assumed multiplier of fiscal contraction. (see WEO 2012, chapter 1, box 1.1).

Not very promising, Herr Steinbrueck ! Makes me seriously doubt that he has what it takes to perform a U-turn in German economic policy and to competently lead the eurozone out of the crisis.