Germany as the European Union’s status quo power? Continuity and change in the shadow of the Covid-19 pandemic

ABSTRACT

In July 2020 the European Council adopted the new multiannual financial framework (MFF) and the additional European recovery budget ‘Next Generation EU’ (NGEU). Certainly, this agreement marked a clear change in German European policy. Germany was not only prepared to pay significantly higher contributions to the EU budget, but also accepted to launch an additional European economic stimulus programme that will be financed through European common debt. However, Germany insisted on significant constraints and substantive limitations in scope of these new instruments. This restrictive, hesitant and rather defensive policy of prevention can be explained by Germany’s role as status quo-power (SQP) in the European Union (EU). This role implies that Germany is trying to preserve the existing status quo, the agreed structures and rules, and is only prepared to agree to far-reaching changes if this status quo or even the existence of the EU itself appear to be at risk.

KEYWORDS:

• European budgetary policy
• Germany’s European policy
• multiannual financial framework
• Next Generation EU
• status quo-power

Introduction

The European Council agreed at a special meeting from 17 to 21 July 2020 on the new multiannual financial framework 2021–2027 (MFF) and on an additional European recovery budget with the heading ‘Next Generation EU’ (NGEU). This had been an outstanding milestone in European budgetary policy and in Europe’s answer to the Covid 19-pandemic. Moreover, this agreement marked a clear break in German European policy. German and international observers recognized ‘a huge shift by Berlin’ (Fleming & Brunsden, 2020), they spoke about ‘a 180-degree turn by Merkel’ (Kafsack, 2020; own translation) or about ‘one of the biggest U-turns of her career’ (Mallet et al., 2020).

This assessment of ‘Merkel’s change of heart’ (Schmidt, 2020, p. 1184) had been shared also in academic literature. However, the reasons for this change in Germany’s European policy remained controversial. Vivien A. Schmidt recognized Merkel’s ‘cognitive shift’ because of ‘political dangers of rising populist discontent’ (2020, p. 1184), and Matthias Matthjis explained this U-turn with reference to the people acting in German European policy as ‘a shift in thinking brought about by a new finance minister’ (2022, p. 21). Stella Ladi and Dimitris Tsarouhas explained this turn of Germany’s European policy with ‘policy-learning’ (2020, p. 1052) and de la Porte and Jensen argued that Germany and particularly chancellor Merkel had learned from the last financial crisis in the Eurozone (2021, p. 5). Other observers emphasized Germany’s ‘national material interest’ (Schramm, 2021, p. 15) and economic self-interest (Crespy & Schramm, 2021). The fear of an economic collapse in Italy and Spain with economic consequences for the German export economy, the integrity of the Eurozone and the single market were mentioned (Baccaro et al., 2021). In contrast, Freudlsperger and Jachtenfuchs recognized ‘not an indication of a fundamental shift in German preferences’ (2021, p. 127) and though Howarth and Schild spoke about a preference change in German policy, they did not expect a durable shift (2021, p. 224). Simon Bulmer, finally, also acknowledged Germany’s change of policy, but sees no paradigmatic change (2022).

These analyses compared Germany’s role during the pandemic crisis and its role during the financial crisis in the Eurozone a decade ago. At that time, Germany had opposed vehemently all hints for a European fiscal union including common debt and advocated instead strictly for budgetary discipline and austerity. Now, in the context of the European budget negotiations, Germany reacted quite differently – it was ready for an expansion of the European Union (EU) budget, the introduction of an additional recovery and resilience fund (RRF) and financing of this fund by common EU debt.

Nevertheless, these changes targeted and affected the EU as a whole and were not limited to just the Eurozone. Moreover, this framework allowed for the agreement on a number of conditions and restrictions to confine change. Germany only agreed to a one-off solution, earmarked only as reaction to the pandemic crisis and also temporary restricted – a one-time response to a one-time crisis.

This article examines the change in German European policy in the context of the European budget negotiations and tries to add further aspects to the debate on the reasons for this significant shift. It tries to explain and trace this change from a different point of view. I argue that Germany developed into Europe’s dominant status quo-power (SQP), which is mainly interested in preserving the current European order and system of European integration and reacts only hesitantly and reluctantly to change. The first step thus is to set out this approach and based on it to formulate it to formulate yardsticks to recognize a SQP. The ‘U-turn’ in Germany’s policy then will be traced and explained in a second step. The next section tries to single out the main reasons for this realignment, the European policy motives and the domestic policy reasons. The final conclusion then summarizes and tries to answer the hypotheses from the beginning.

Germany as European status quo-power

Certainly, Germany’s role in Europe and the European Union has been of particular importance for a stable order in Europe and the development of the European integration process. Especially after German unification, its European policy and role have been repeatedly discussed and analysed, starting with debates on continuity and change. Then, the debate circled around Germany as a normal European power (Hyde-Price & Jeffery, 2001) with a European vocation (Paterson, 2010a), and about Germany’s role as a European hegemon, albeit a ‘reluctant’ (Bulmer & Paterson, 2019; Paterson, 2010b), ‘hobbled’ (Webber, 2019, p. 1146) or an ‘embedded’ (Crawford, 2007) one. Subsequently, this debate on German hegemony in the European Union – with or without adjectives – has been extended to include the concepts of hegemonic stability (Matthijs, 2022; Matthijs & Blyth, 2011; Schoeller & Falkner, 2022; Webber, 2019) and non-hegemonic leadership (Schild, 2020; Schoeller, 2015). An additional understanding of Germany’s role is the category as Europe’s main SQP (see for this role in the EU Becker, 2016; Schimmelfennig, 2021; for this role and Germany’s foreign policy see Daenhardt, 2018).

This differing terminology for describing Germany’s role in the European Union requires a more concrete classification, differentiation and definition. According Schild’s definition hegemony is a type of leadership of ‘a more structural, permanent nature’ which is ‘underpinned by strong power resources, material and non-material, hard or soft, has a wider functional scope ande encompasses a larger number of issue areas’ (Schild, 2020, p. 1075). For the strand of hegemonic stability theory the hegemon provides public goods such as a market for goods, a stable currency, lending during crisis, coordination of macroeconomic policies. The stabilizing hegemon ‘is not an imperial power, but rather “first among equals”’, maintaining a stable international political order and economic system, and ‘reconciling the interests of the hegemon with those of other states in the system’ (Webber, 2019, p. 1145). In times of economic crisis the dominant stabilizer and its policymakers draw back on their economic ideas ‘and narrate the crisis in their broad discourse and communication to the public’ (Matthijs, 2022, p. 8). The role as hegemon or leader, thus, involves structural, permanent and active guidance, and is expected to shape the international or regional legitimate order in the interest of common goals or values; its objectives would be comprehensive and at the same time fundamental. Hence, the role of a hegemon includes special responsibilities and even duties accepted, adopted and implemented by the hegemon for the legitimate system as a whole. Therefore successful leadership is often associated with institutional change or innovation of the existing order (Bulmer & Paterson, 2013; Schild, 2020; Schoeller, 2015). A non-hegemonic type of leadership, however, ‘is more limited in time and scope, underpinned either by issue-specific, not structural power resources, or by the power of ideas and the better argument’ (Schild, 2020, p. 1078).

The SQP, on the other hand, seeks to preserve, maintain and to protect the existing order in which it operates; its main interests are stability and continuity of the cornerstones and basic structures of the existing order for as long as possible. It tries to postpone changes and even adjustments as long as possible and only reacts when it perceives its preferred order at fundamental risk, i.e., the status quo itself. It clearly is satisfied with and values the status quo of politics and policies; in its eyes this status quo has proven stable and successful. To strive for continuity and preserving the status quo, however, does not mean that no changes are possible at all, but rather limits their scope and thus the extent of changes that are acceptable to the SQP. In this respect, it does not pursue comprehensive interests or objectives for changing fundamentally the existing order with its established rules and reliable procedures – because the status quo of the system already contains the preferred best solution. It is about adjustments and gradual changes to restore or consolidate order and stability; a change of the order itself and its essential elements, however, will be rejected. Hence, the SQP usually acts defensively, cautiously and hesitantly when adaptation or incremental change of the established order is absolutely necessary. The SQP reacts in a problem-related way, i.e., to adjust the order or system to new challenges or in case of crisis. Unlike the hegemonic stabilizer the SQP does not pursue a comprehensive claim to leadership based on commons and values, but an approach characterized by rational cost–benefit considerations compared to the status quo. The SQP’s interest in ideas and discourses to legitimise its leadership is marginal and its willingness to contribute or offer a public good depends on the threat to the order as a whole. Hence, the SQP tries to solve concrete problems in order to stabilize and maintain the existing order.

The European order that emerged after the end of the Cold war and German unification in 1989/90 has been largely accepted by all partners so far. For the first time in its history Germany is surrounded by friends and partners. After the end of the Cold War, Germany became intensively involved in the further development of the European integration process, both to deepen and to enlarge the European Union. This policy implies certainly the satisfaction with and a strong interest in the continuation of the existing order in the European Union; European integration was and still is a ‘foundation stone of its economic and political system’ (Bulmer & Paterson, 2019, p. 262). Germany had been successful in shaping this European order, the institutional arrangements and policies according and supportive of German interests (Bulmer et al., 2000). Germany essentially has got and shaped the EU it wanted, needed, and which suits its interests and preferences – and Germany’s preferences lie therefore in the maintenance or only moderate change of this status quo of European integration.¹

Thus, German European policy today follows the objectives and principles as the SQP in the centre of Europe. The united Germany has gradually found, consolidated and steadily expanded this role as preserver of the legitimate order. This role makes Germany not only a satisficed member state in the European Union which is unwilling to change this legitimate order (Schimmelfennig, 2021, p. 575). Moreover, this role allows and perhaps even requires a much stronger weighting of costs and benefits of integration steps and changes, i.e., an interest-driven policy whose willingness to change can differ significantly between policies and problems (Beichelt, 2009, pp. 209–224). Fundamental changes will only be approved by Germany as SQP in those cases that promise a cooperation gain compared to the status quo, in particular in case of fundamental crises that could lead to an existential threat to the order to be protected (Freudlsperger & Jachtenfuchs, 2021; Howarth & Schild, 2021; Schoeller & Karlsson, 2021). Consequently, Germany has a great deal of veto and obstruction power against any proposal for fundamental change. Nevertheless, it is indispensable for the further development of the EU and for far-reaching changes (Schild, 2020; Schimmelfennig, 2021).

Based on this definition of a SQP three yardsticks can be differentiated for evaluating Germany’s role as a central SQP in the EU:

1. Germany’s perception of risk and existential depth of a crisis for the status quo and thus of the necessity of adjustments to the system to ensure the maintenance of the status quo;

2. Germany’s willingness to accept modifications to the status quo and its insistence on limitations of scope and depths of changes

3. and finally the timing of when Germany accepts adaptations to the status quo.

The assessment of Germany’s ‘U-turn’ in spring 2020 and its acceptance not only of an additional European economic stimulus budget but also its financing it through European common debt is a suitable case study for testing this approach, i.e., examining continuity and change in Germany’s European policy.

Germany’s policy in European budgetary negotiations

Germany as the biggest member state and dominant economy in the European Union and also the largest net payer to the European budget in particular always played a special role in European budget negotiations. Either, Germany used its economic weight and budgetary strength to balance the conflicting interests and opposing objectives within the EU and thus enabled a final compromise with its payments. Or it stuck to its role and interests as biggest net paying member state to limit the MFF-volume and to insist on budgetary stability, efficiency and frugality (Becker, 2014; Laffan, 1997, 2000; Lindner, 2006).

In contrast to restrictive positions adopted in previous MFF negotiations German politics indicated in the run-up to the negotiations on the MFF 2021–2027 that it was prepared to pay more for the EU budget. The coalition agreement from 7 February 2018 of the grand coalition of CDU/CSU and SPD stipulated in its first chapter with the title ‘A new awakening for Europe’ that the German government wants ‘to improve the EU’s financial situation’ and that it wants to ‘ensure this in the creation of the next multi-annual financial framework’ (Coalition Agreement, 2018).

Despite this preparedness to higher German contributions to the European budget, the federal government followed at the beginning of the European negotiations the traditional path. As biggest net paying member state Germany urged for European budgetary discipline and tried to limit the overall volume of the budget and as usual, the federal government tried to reduce German net payments. For this reason, the federal government negiotiated cautiously, status quo-oriented and strived for almost traditional objectives (Bulletin der Bundesregierung, 2019).

However, the outbreak of the Covid-19 pandemic in the European Union in early March 2020 and its socio-economic consequences fundamentally changed the framework and the context of the European budget negotiations. Very quickly the extent of the socio-economic costs of the pandemic became apparent with sharp decline projected for growth and consequently drastically high unemployment figures (European Commission, 2020a; International Monetary Fund, 2020).² Moreover, the return to national solutions including border closures and export bans at the beginning of the pandemic in Europe showed immediately and very clearly the negative consequences for the European single market. The danger of instability as well as different competitive conditions and thus a further drifting apart of the European economies in the internal market grew. At the same time, expectations and demands for European financial aid rose. A deep divide quickly opened up between the member states in the South and in the North. On the one hand, the Mediterranean states pleaded for so-called ‘Corona-bonds’, while on the other hand, some northern member states, especially the Netherlands and Germany, vehemently rejected this proposal (Salvati, 2021; Schramm, 2021, p. 9).

The German government initially supported proposals for medical care in this crisis situation and provided rather symbolic aid by accepting intensive care patients from France, Belgium and Italy. The rather defensive German policy focused on existing EU crisis instruments before new ones were to be created. According to the federal government, financial aid would only make sense if it could be provided quickly and on a secure legal basis (Howarth & Schild, 2021, p. 221). This included a special credit line through the European Stability Mechanism (ESM) and shifts within the EU budget. The German government was only willing to adapt the conditions for the provision of ESM credits to the special situation of the pandemic crisis.

In March, after long and conflictual, however, unsuccessful negotiations in the ECOFIN-Council, the European Council should hammer out a solution between the two opposing concepts: on the one hand the introduction of Corona-bonds and on the other hand a new ESM credit line with special conditions. On 25 March 2020, the heads of state and government of nine member states including France, Italy and Spain demanded in a joint letter to the President of the European Council to discuss the ‘proposal of a common debt instrument’ in the European Council. This instrument should be

issued by a European institution to raise funds on the market on the same basis and to the benefits of all member states, thus ensuring stable long-term financing for the policies required to counter the damages caused by this pandemic. (Michalopoulos, 2020)

However, this massive demand was interpreted as a ‘battle declaration’ on the northern member states (Berschens et al., 2020; own translation). Especially the public support of this demand by France was interpreted in Berlin as a clear challenge to which the German government had to react (Howarth & Schild, 2021, p. 221). For the federal government, this proposal seemed to be an attempt to exploit the pandemic to revive the old idea of Eurobonds, which had already been put forward by the same member states and just as massively a decade ago during the sovereign debt crisis in the Eurozone. Germany had always rejected these proposals and continued to maintain this position. The video conference of the European Council on 26 March 2020 then was marked by a deep conflict and exchange of blows between the German Chancellor Merkel and the Italian Prime Minister Conte. Merkel again rejected the demand for Corona-bonds and remained tough on the issue; she was quoted: ‘If you wait for Corona-bonds, they will never come’ (Heyer et al., 2020; own translation). The German government’s main argument against the idea was that the demand was too unspecific and that it would need a long time for implementation, especially because there was no sound and secure legal basis in the European treaties for introducing these bonds (Berschens et al., 2020); rather, it was feared that an amendment of the treaties would be unavoidable (Merkel, 2020a). The German Minister for Economics Peter Altmaier was quoted that this debate about Corona-bonds was a ‘phantom debate’ (Koch et al., 2020; own translation). Nevertheless, both the Chancellor and her ministers repeatedly stressed Germany’s willingness to show more financial solidarity with its European partners and to pay higher contributions to the EU budget (Greive & Hildebrand, 2020; Poschardt, 2020).³ The German government now supported the linking of an European crisis response and an economic recovery with the MFF negotiations (Auswärtiges Amt, 2020).

After the clash of positions in the European Council, the Presidents of the European Council and the European Commission stated in a joint roadmap for an European crisis response that ‘(t)he future MFF will be a key instrument to support a lasting recovery’ (President of the European Commission and President of the European Council, 2020). The European Council finally endorsed the proposal on 23 April 2020 and instructed the Commission to prepare proposals for a European recovery fund without delay. The new fund should be linked to the MFF, have a sufficiently high volume and be used specifically to deal with the consequences of the crisis (President of the European Council, 2020).

The Chancellor supported this proposal in her speech in the German Bundestag on 23 April 2020: ‘We should be prepared, in a spirit of solidarity, to make quite different, i.e., significantly higher, contributions to the European budget over a limited period of time’. The new fund had to be ‘thought together with the European budget from the outset; because the common European budget is the instrument of solidarity-based financing of common tasks in the European Union that has proven itself for decades’. Moreover, she stressed that an additional European economic recovery budget should be limited in time. On the other hand chancellor Merkel emphasized the importance of European solidarity, unity and cohesion; she said: ‘For us in Germany, the commitment to a united Europe is part of our raison d’état … We are a community of destiny’ (Merkel, 2020a, p. 19300; own translation). With this statement, however, she not only focused on the MFF-negotiations, but also ruled out any ideas for new, uncertain and risky instruments. Moreover, by concentrating on the budget of the EU-27, she also implicitly rejected any ideas for differentiated integration and a deepening in the Eurozone.

Germany was now prepared to significantly increase the volume of the European budget and to accept an additional recovery budget, albeit temporary and targeted, if the Mediterranean states gave up their demand for Corona-bonds. According to the German ideas, these adjustments should be made in the course of the budget negotiations by raising the own resources ceiling and thus unanimously and with the involvement of the national parliaments, but without treaty change (Crespy & Schramm, 2021, p. 15). In the further course of negotiations, the German government also accepted the demands of Spain, Italy and France that a large part of the additional funds should not be provided as loans but as non-repayable grants. This change in Germany’s policy, however, was only possible because the position of the French government also had changed (Krotz & Schramm, 2022, p. 10). Having played a leading role in the group of nine member states arguing for Corona-bonds, France had qualified this demand for mutual bonds after the harsh and persistent German rejection of this proposal. In its non-paper of 8 May 2020, the French Ministry of Finance outlined the country’s new ideas and goals for a European recovery fund and refrained from using the term Corona-bonds. Paris agreed that the recovery fund would be linked to the MFF and used to top-up existing European spending programmes of the EU-27, and hence would not be used for the Eurozone only (French Non-Paper, 2020, may 8).

This French proposal also served as starting point for high-level, and strictly confidential negotiations between the German chancellery and the office of the French President as well as between the German and the French ministries of Finance (Bulmer, 2022; Krotz & Schramm, 2022). After the preparation by the two ministries of finance, the decisive negotiations on the Franco-German paper between the Chancellery and the Élysée took place at the last weekend before the presentation in a joint video press conference of Chancellor Merkel and President Macron on 18 May 2020 (Press and Information Office of the Federal Government, 2020). The Franco-German tandem pleaded in favour of an ambitious additional fund with a total volume of 500 billion Euro – but limited in time and scope. This bilateral initiative also advocated that the EU should take on common debt and raise the ceiling of own resources for this purpose. Debt raising should remain a temporary exception and be linked to a binding repayment scheme in the European decision on own resources. The Franco-German tandem did not present a concrete and elaborated joint position paper, but used the ambivalence of a press communiqué and thus secured a certain negotiating leeway for the upcoming and foreseeably difficult MFF negotiations. Although the Franco-German paper was on many points vague, this initiative has dominated the debate ever since. Moreover, this initiative documented the revival of the Franco-German integration motor and Germany’s willingness to accept new budgetary instruments and increasing funding in this most serious economic and social crisis of the European Union.

Most surprising, however, was the fact that the Chancellor received once more the backing of her party and the CDU/CSU group in the Bundestag (Donelly, 2021, p. 236). The Christian Democrats stressed the ‘European solidarity’ and the ‘common European response’ of the Franco-German initiative, while emphasizing the limited scope. ‘This is not the way to a European debt union’, one CDU-parliamentarian argued (Deutscher Bundestag, 2020b, p. 20308/09; own translation), because Corona-bonds could have been avoided. According to their thinking, the Franco-German proposal was only about temporary programmes with a limited financial volume and only focussing at the pandemic crisis (Crespy & Schramm, 2021, p. 16). Moreover, the new fund would be linked to additional conditionality and only used for new investments and not to repay old debts (Deutscher Bundestag, 2020b, p. 20314 and 20319). In her speech in the Bundestag on 18 June 2020, the Chancellor repeatedly emphasized these limitations of the Franco-German proposal:

The plan for Europe’s recovery is explicitly related to the pandemic, targeted and limited in time. The European Commission will be authorised on a one-off basis to borrow on the market on behalf of the European Union and use it for crisis-related grants. (Merkel, 2020b, p. 20640; own translation)

Finally and after a few postponements, on 27 May 2020 the Commission presented its comprehensive budget package with a new proposal for the next MFF and an additional recovery fund now dubbed ‘Next Generation EU’ (NGEU) (European Commission, 2020b, 2020c). To bankroll this massive European economic stimulus package, the Commission proposed that the EU should take on common debt for which the own resources ceiling should be increased to 2 percent of the EU GNI. This proposal represented a de facto guarantee by the member states for the financing of the additional stimulus budget which the federal government, however, considered as ‘quite plausible, comprehensible and reasonable’ (Antwort der Bundesregierung, 2020, p. 5; own translation). Finally, the President of the European Council invited the heads of state and government to a special MFF summit with personal presence in Brussels in July 2020. This summit, originally scheduled for two days, developed into a marathon of five days from 17 to 21 July which according to Charles Michel at least twice were on the brink of failure. The German government tried apparently to combine four goals during these marathon negotiations:

1. To secure and consolidate the cohesion of the EU-27 and to mediate during the very tough negotiations between the opposing groups;

2. to use the weight of the Franco-German tandem for this purpose and to expand the close cooperation with France also during the summit;

3. to secure the envisaged European recovery fund NGEU for the member states particularly affected by the pandemic and to use this additional funding primarily for the long-term climate policy and digital goals of the EU;

4. and finally, to push through its own national interests in the MFF-negotiations, such as the continuation of the German rebate, a safety net and special payments of structural funds in favour of the German Länder and to promote rural areas (Merkel, 2020b). The heads of state and government finally reached a deal on all points of conflict and the federal government could successfully achieve its goals during the five-day negotiations (European Council, 2020).

Incremental change of Germany’s position

The compromise in the European Council was only possible because the German government had changed its position during the European budgetary negotiations. However, until the first and unsuccessful attempt of the European Council to hammer out a compromise on the MFF 2021–2027 in February 2020 the traditional goals of Germany’s MFF policy stemming from its role as biggest net-paying member state remained basically unchanged (Becker, 2014).

The outbreak of the Covid-19 pandemic, then, not only changed the environment of the MFF negotiations but also altered Germany’s policy in the negotiations and its objectives fundamentally, ‘an enormous shift in principle’ (The Economist, 2020). This shift, however, took place rather incrementally, step by step, and mostly in reaction to the specific short-term challenges of the rapidly changing negotiating environment. It did not concern the actual MFF-negotiations but the overall European pandemic crisis response and the comprehensive financial package. Germany agreed to a significant increase in the own resources ceiling and, for the first time, to permit the European Union the possibility of common debt – albeit for a limited period of time and only to finance the European recovery fund.

The European policy reasons

Initially, the German approach in spring 2020 was to enable a common and quick solution to help its European partners and to support economic recovery. At the same time Germany tried to avoid new and probably controversial instruments that would have required longer discussions, a fundamental change of rules or policies or even treaty changes. This rather defensive and status quo-oriented policy put the existing crisis instruments of the European Union to the fore.

However, economic possibilities and starting points of the member states for national aid and subsidy programmes to cushion the economic and social costs of the lockdown varied widely. Germany was able to launch by far the largest, most expensive and most comprehensive national aid programmes (Anderson, 2020). This put a weighty justification constraint on a too restrictive or frugal German negotiation approach. The larger the national programmes in Germany, the higher the expectations on German solidarity grew among European partners and the more difficult it became to justify German hesitation towards new programmes. Moreover, the German interest in a European crisis response grew significantly when very quickly the consequences of the closing of the national borders became clearly visible for the supply chains of German industry. The high economic and social damage as a result of the pandemic and the lockdowns endangered the cohesion and stability of the European single market (Baccaro et al., 2021, pp. 30–33).

Thus, the federal government’s preparedness for European measures and higher German payments grew, however, without questioning the traditional German constraints and red lines. The decisive German red line was certainly to prevent any form of unlimited and unconditional European financial aid, i.e., any step towards a European ‘transfer union’ and a permanent debt mutualization (Howarth & Schild, 2021). This term ‘transfer union’ has very negative connotations in the German political debate, as it is commonly understood as a system of unlimited, unconditional, and permanent redistribution of public funds between member states.

Moreover, this debate about the necessity and limits of European solidarity in principle, was connected with the German fear of a ‘joint and several liability’ as an element of European bonds, i.e., the fear that in a negative scenario, in the event of default or refusal to pay by individual debtor states, Germany (or any other member state) would have to stand in for all Corona-bonds of other member states. Hence, the instrument of joint debt as element of solidarity created concerns and rejection in the German debate and should be avoided at all costs (see Beise, 2020; Deutscher Bundestag, 2020a, p. 19338, 19345; Höltschi & Wysling, 2020; Kinkartz, 2020; Koos & Leuffen, 2020). Against this background, the demands from Italy, Spain and France to create Corona-bonds were interpreted as attempts to use the pandemic crisis to introduce once more the old idea of unlimited, permanent and unconditional transfers or a redistribution mechanism between the North and the South in the European Union.

However, in return for preventing Corona-bonds the German government had to accept a larger European budget and significantly higher German payments. The German government stuck to link the ongoing MFF negotiations with the considerations on new European instruments against the pandemic and thus to focus on instruments of the EU-27 and not at the Eurozone only. Hence, one paramount German interest had been to safeguard and consolidate the cohesion of the EU-27. When the demands for Corona-bonds became louder especially from Italy, the federal government tried to prevent the demand for mutual European debts and was only prepared to agree to an additional recovery fund alongside the European budget (Koch & Riedel, 2020). The German government also supported the European Commission’s considerations to take advantage of the temporal coincidence of the pandemic crisis with the European budget negotiations and to use the next MFF as a framework and the existing EU spending programmes as instruments for this additional recovery fund. However, Germany’s specific goals in the negotiations on the new MFF were never disregarded. Although, the negotiations on the new recovery fund dominated the ongoing MFF negotiations, Germany continued to insist on its own appropriate rebate and on limiting the losses in European structural funds for the German Länder.

This rather defensive German approach meant that the federal government had to subscribe to the most far-reaching changes in the European system of own resources. The integration of the new fund into the MFF required a significant increase in the own resources ceiling. Of much greater political explosiveness, however, was Germany’s acceptance to finance this additional fund by mutual European debt. The focus on European institutions and the linking to the European budget meant that each member state would only be liable for the financing of the recovery fund to the extent of its own share in financing the EU budget. The problem of the controversial joint and several liability could thus be circumvented from the German point of view.

Already in April 2020 the federal government was successful to push through some key limitations in scope, volume and the time frame. The use of the fund should only be possible to contain the socio-economic consequences of the pandemic crisis and for common European objectives and investments. However, the decisive red line, at least from the point of view of the largest ruling party the CDU/CSU, was that this additional recovery fund should remain a one-off instrument for this exceptional crisis. Any appearance that it was a first step towards a European fiscal union had been rejected by the CDU/CSU; the singularity of this instrument was decisive for the approval of the Christian Democrats.

The domestic policy reasons

In addition to these European policy motives, the adjustment of Germany’s negotiating position in March and April 2020 was guided by strong domestic policy motives (Bulmer, 2022). The decisive objective of preventing any step towards a European ‘transfer union’, i.e., any form of open-ended and unconditional European financial redistribution had also roots in domestic politics. The deep crisis in the Eurozone and the demand for Eurobonds had already led to the establishment of a new right wing populist party, the Alternative für Deutschland (AfD). Moreover, the CDU/CSU in the German Bundestag faced a decade ago deep disunity and an increasing number of dissenting votes of the CDU/CSU group in the Bundestag on the specific votes on rescue schemes during the Eurozone crisis (Howarth & Schild, 2021). However, on the other hand it was precisely the AfD’s rejection, fundamental European scepticism and radical criticism that expanded the federal government’s domestic negotiating leeway. In contrast to the AfD, the sceptics in the CDU/CSU parliamentary group could only cautiously and timidly voice their criticism against the government’s change of course, because the strict demarcation from AfD’s positions could not be questioned. A political rapprochement with the AfD even on single issues or specific points would have made the CDU/CSU all the more vulnerable in terms of domestic politics.

The ambivalence of the coalition agreement from February 2018 masked different, partly contradictory goals of the coalition parties. While the Social Democrats in the governing coalition continued to adhere to the objective of a European fiscal union with mutual debts at least in the medium term, the CDU/CSU clearly rejected this goal. This inconsistency could again be observed during the pandemic crisis. The rather technical explanation for the rejection of Corona-bonds with the lack of legal certainty and the slow implementation therefore became a compromise of wording but not in substance. Finally, the lowest common denominator found in the federal coalition government was the agreement to maintain the status quo and at least to postpone far-reaching changes. Thus, the caveat of a quick, one-off, and targeted orientation of the recovery budget and the legal certainty of debt-based financing became and remained a central German negotiating position.

Moreover, the question of legal certainty took on special significance after 5 May 2020 when the Federal Constitutional Court published its spectacular Ultra Vires ruling on the European Public Sector Purchase Programme (PSPP) (Bundesverfassungsgericht, 2020). The political repercussions of this ruling were also felt in the Bundestag (see Blume, 2020; Deutscher Bundestag, 2020c, p. 20652; Fleming & Brunsden, 2020). Against this background, a controversial legal basis of the proposed recovery fund had to be avoided. In this context, the opinion of the Council’s Legal Service from June 2020 on the legality of the proposals for the recovery budget NGEU had been of special importance for the German government. In particular, the reference to the need to adapt the European Own Resources Decision as a prerequisite for this solution and the special legal basis for crisis situations with Art. 122.2 TFEU were necessary clarifications. Moreover, the limitations of the new instrument mentioned in the opinion that the chosen measures could only be ‘exceptional and temporary’ were important for the German approval (Council of the European Union, 2020, p. 4).

Moreover, the government’s defensive and cautious policy towards European financial aid was in line with public opinion in Germany. The instrument of common debt as an element of European solidarity in form of Corona-bonds, therefore, caused anxiety in German public debate. In spring 2020, the opinion polls deliverd a mixed picture depending on the form of solidarity questioned. While a majority in German public opinion overwhelmingly supported all emergency medical aid measures, especially after the reporting on the crisis in Bergamo, a majority remained hesitant about financial aid and and rejected the demands for Corona-bonds (Cicero, 2020); these bonds were supported by only 26 percent of respondents (Hassenkamp, 2020; Kinkartz, 2020; Koos & Leuffen, 2020).

Conclusions – policy change with elements of continuity

Over decades, Germany’s role in European budget negotiations has been characterized by its role as net paying member state and by a clear continuity of objectives and preferences. Germany’s policy during the recent negotiations on the MFF 2021–2027 followed the traditional path However, after the outbreak of the pandemic the budget negotiations became different and Germany had to accept major changes, especially with NGEU and to agree for the first time to take on common debt for the EU budget on an unprecedented scale. Germany tried to demonstrate its willingness to show solidarity to its European partners, to ensure the EU’s ability to act quickly in response to the pandemic crisis, and to consolidate the cohesion of the internal market by sticking to the use of the EU’s existing aid mechanisms and the concession to significantly expand them. Only when these proposals and instruments proved to be insufficient, Germany was prepared to make further concessions. But Germany was only prepared to make these adjustments after France, still Germany’s preferred partner in European policy, had clearly committed itself and demanded Corona-bonds – well aware that this demand would be a red line for the federal government. At this point at the latest, the status quo-power Germany had to rethink its defensive, hesitant and merely reactive negotiating position and to work out a compromise solution together with France.

The primary aim of Germany’s ‘U-turn’ was to preserve the existing order and the stability of the European Union, i.e., the cohesion and the capacity to act as EU-27. For this reason, the European recovery fund should be linked with the new MFF and thus become part of the EU-27; moreover, negotiating the new fund together with the new MFF meant to hammer out a consensus in the European Council.⁴ The federal government was only prepared to correct its position when adjustments were inevitable, i.e., when the cohesion of the EU and the special partnership with France were fundamentally at risk. Chancellor Merkel hence argued:

The pandemic and its associated economic collapse are the greatest challenge in the history of Europe … .We must not allow the pandemic to lead to a drifting apart of the economic perspectives of the EU member states and thus weaken the internal market, a core element of Europe. (Merkel, 2020b, p. 20639; own translation)

However, the federal government linked its policy change with specific limitations and boundaries for the new instruments. The additional funds should be connected with the European green deal and digitization, hence with common EU objectives promising European added value and a modernization of European policies. The decisive restriction demanded by the federal government, however, had been the uniqueness and singularity of the new instruments. These restrictions in scope and time of all these measures had been red lines, at least in the domestic debate for the largest governing party the CDU/CSU. Chancellor Merkel was only able to convince her parliamentary group of the necessity for the new recovery fund because she assured them that this would remain a one-off.

Hence, in this case of developing an European reaction to the pandemic-crisis, Germany largely fulfils the yardsticks as Europe’s central SQP:

1. Germany was prepared for unavoidable concessions only when it perceived the effects of the pandemic crisis as threatening the very existence of fundamental institutions of European integration like the internal market and the cohesion of the EU-27. Thus, it was no longer possible to stick to the status quo and adjustments were necessary.

2. However, Germany insisted and was able to push through restrictions on the substantive scope, and limited the functional reach of it’s concessions for further integration. As a one-off solution, the concessions were not intended to signal a permanent integration step and thus a fundamental change.

3. Finally, Germany was only prepared to change the status quo at a very late stage. Still in March 2020, the federal government insisted on using the existing financial instruments of the EU to react quickly and without major adjustments to the pandemic.

Moreover, Germany undoubtedly was indispensable to any further response of the EU to the pandemic crisis. Any changes to the existing order and the status quo required the consent and participation of the largest member state in the centre of Europe. In this respect, Germany had a great power of prevention, obstruction or even veto. The solution found in the EU hence was ‘a politically constrained solution’ or a ‘Janus solution: promising a fresh start, but haunted by the past’ (De la Porte & Heins, 2022).

Acknowledgements

I am grateful to the editors and the anonymous reviewers for their constructive criticism and a number of very helpful comments. My special thanks go to Simon Bulmer and Joachim Schild for valuable feedback and suggestions on an earlier draft of this article.

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No potential conflict of interest was reported by the author(s).

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Notes on contributors

Peter Becker

Peter Becker is Senior Associate in the research division EU/Europe at the German Institute for International and Security Affairs of Stiftung Wissenschaft und Politik (SWP).

Notes

1 The last German initiative to shape the European order proactively with a fundamental and innovative proposal for comprehensive legal and institutional reform had been two decades ago Joschka Fischer’s famous Humboldt-speech and the attempt to further develop European integration into a European constitutional order with the help of an EU convention. This attempt failed not in Germany but in the two founding member states France and the Netherlands. The lesson learned for German European policy under chancellor Merkel was: no far-reaching and too fundamental reform efforts which could be risky, only entail high political costs with incalculable and only potential gains. Instead, a European policy of sticking to and stabilizing the existing European order with small, incremental adjustments - gradual integration without any integration vision or model. These gradual change always pursued the goal of preserving the status quo and successes of Germany’s milieu shaping policy.

2 The IMF estimated in its World Economic Outlook in April 2020 for European economies economic decline in Germany (−7.0 percent), France (−7.2 percent), Italy (−9.1 percent), and Spain (−8.0 percent) and a sharp increase of unemployment (International Monetary Fund, 2020). The European Commission projected in its Spring Economic Outlook of May 2020 the economic growth in 2020 to contract by 7.4 percent for the EU-27 and 7.7 percent for the Eurozone, and forecasted unemployment to rise to 9 percent in the EU-27 and 9.6 percent in the Eurozone in 2020 (European Commission, 2020a).

3 In these interviews the German minister of finance Olaf Scholz said to the newspaper “Handelsblatt”:“We will do everything we can to support Europe” (own translation) and Michael Roth, the federal minister of state responsible for European policy in the foreign office, said to “Die Welt”: “Now money is not an issue. We hook up and show solidarity with our partners in Europe and the world.” (own translation).

4 In one of her last interviews as outgoing chancellor Angela Merkel said: “From my point of view, it is an imperative for action that everything must be done to find a way to keep Europe together.” (Süddeutsche Zeitung, 2021; own translation).