Could Germany's Left Save The Euro (And Europe)?

 |  Includes: ERO, EU, EZU, FXE
by: Dana Blankenhorn

Conventional wisdom holds that most Europeans don't like the EU, and that the euro is doomed. But that view is based on American political assumptions about left and right, and a belief that Europeans will always vote for nationalistic conservatives -- and it's not true. Angela Merkel's Christian Democrats are under enormous, and increasing, pressure from the Social Democrats and Greens, both of which are on record as supporting eurobonds and greater European integration.

Most Europeans seem to know what America learned over 220 years ago, that you can't have a strong economy without some central authority to keep member states honest. Thus, Spain's Socialists are supporting the equivalent of a balanced budget amendment. Thus, the idea of the eurobond, backed perhaps by a new tax on financial transactions, including stock sales.

In order to create a eurobond, a bond denominated in euros and backed by Brussels, rather than any member state, the fiscal policies of all members must be unified. Americans may assume this is impossible, that the peripheral states in the eurozone can't accept fiscal discipline, and that core states like Germany are tired of supporting them.

But the biggest supporters of the eurobond concept are the left-wing parties, and support for both of them – most especially the Greens – is rising. It's the German right that is in court against the Greek bailout, and they're losing – both in the courts and with public opinion.

This is something The Wall Street Journal fails to grasp, even while acknowledging that the German Left is pro-Europe, and that its support keeps rising.

While American politics are assumed to be based on either spending or not spending, or on a choice between domestic and military spending, European politics don't line up that way. There it's more of an internationalist left and a nationalist right, a pro-Europe left and a Euro-skeptical right.

Thus we assume that Merkel's problems mean Germans don't like Europe. But if that were true ,Merkel's losses would all be to the ultra-nationalistic far right, and in reality they're to her left, to those who embrace European integration.

This week in Merkel's home state of Mecklenberg-Vorpommern, which is the nation's far northeast, part of the former East Germany, the results were Social Democratic Party 35.7%, Christian Democratic Union 23.1%, the Left Party (formerly East Germany's Communists) 18.4%, Greens 8.4% and the anti-immigrant National Democratic Party 6%. That's a clear majority for parties that support greater economic coordination across Europe.

Merkel's Euro-skepticism is responding to a threat from within her coalition, from conservative Germans who don't like the euro, don't like the EU, and don't like moves toward a European state. This is a minority view.

What people across Europe seem to be voting for, in other words, is what the bankers want -- a permanent solution that controls spending and deficits across the continent, a unified fiscal policy, a truly united economy. What makes American heads spin is that this means they're voting for the left.

The current Lisbon Treaty is a lot like the Articles of Confederation that ran America from the Declaration of Independence until 1789. What bankers and voters seem to increasingly want is a Constitutional Convention, which would be positive for Europe and for European stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: My IRA does have some mutual funds that trade in international stocks, including European ones.