Thanks to John Weeks, I see this quote from Merkel speaking before the Bundestag last week:
We have made good progress on strengthening fiscal discipline with the fiscal pact but we are of the opinion, and I speak for the whole German government on this, that we could go a step further by giving Europe “real rights of intervention in national budgets”.The idea is that fiscal orthodoxy is soooo important, and individual countries shouldn’t be allowed to tinker with it. If they try to run deficits outside the (narrow) boundaries of the Fiscal Pact, officials from Brussels should step in and overrule them.
Germany, as is well known, is (or tries to be) a paragon of orthodoxy in macroeconomic affairs. Of course, Germany also has a social market economy which violates almost every principle of orthodox microeconomics. And what happens when proposals are put forward to regulate any of that stuff from Brussels?
You can see the answer in the stalemate over banking regulation. As part of a quid pro quo for centralizing the lender of last resort function at the European level, an attempt is being made to assert European control over the oversight of financial institutions—and Germany is fighting it tooth and nail.
Germany, you see, has about half of its financial sector assets in public banks. These are run by state officials whose job is to promote local economic development. They are given large implicit subsidies and permission to calculate their equity cushion in ways that private banks aren’t. (Implicit state support is seen as equity.) Meanwhile, Brussels is dominated by the orthodox view that all public subsidies and political influence should be removed from the financial sector, so that money can flow freely to wherever it can earn the highest rate of return. Equity should mean share ownership, and shares should be freely traded throughout the EU.
On this issue I side with Germany: public banking, for all its faults, plays a crucial role in their economic model and has contributed enormously to its productivity and export success. (This is true, above all, for the Mittelstand sector of small and medium enterprises.) Giving in to the rigid liberalism of Brussels would be a mistake.
Our orthodoxy for you? Of course. Yours for us? Never. It is interesting that there seems to be near-zero awareness of this contradiction within Germany, although it is screamingly obvious to an outsider. As Levi Strauss said, culture is unconscious, and this is true for political culture too.