Has Merkel Given Up on the British?

The German leader seems willing to meet French and Italian demands.

If Germany needed a reminder of why it should want to keep the British involved in the European Union, France and Italy provided one earlier this week when the two countries asked for more “flexibility” to reduce their budget shortfalls.

Rather than insisting on fiscal discipline as she has previously done, German chancellor Angela Merkel on Wednesday surprisingly signaled a readiness to meet French and Italian demands.

“The German government agrees that the Stability and Growth Pact offers excellent conditions for that, with clear guard rails and limits on the one hand and a lot of instruments allowing flexibility on the other,” she told parliament in Berlin a day ahead of a crucial summit in Brussels where leaders are due to discuss José Manuel Barroso’s replacement as European Commission president.

The 1999 Stability and Growth Pact says European Union members should keep their deficits under 3 percent of economic output and their debts below 60 percent. Few countries meet the requirements and especially those in the south of Europe have repeatedly flouted the rules. France has run a deficit in excess of 3 percent since 2009 and isn’t due to bring it in line with its treaty obligations until 2016. Italy violated the rules most recently between 2010 and 2012 and has run deficits at exactly 3 percent since.

Unwilling to enact deeper spending cuts and convinced that public investments can boost job creation, France and Italy, both ruled by leftist parties, have conditioned their support for Luxembourg’s former prime minister, Jean-Claude Juncker, to succeed Barroso on less austerity.

Juncker claims the European Commission presidency because his conservative group, of which Merkel’s Christian Democrats are the biggest members, won a plurality of the seats in last month’s European Parliament elections.

Britain’s David Cameron opposes Juncker’s nomination, seeing him as an old-style European federalist who will care little about the prime minister’s attempts to shift the focus in Europe away from political and toward deeper market integration.

Cameron has promised his voters a referendum on Britain’s future in the European Union, pending an effort to reform the conditions of its membership. If Juncker is elected, he reportedly warned other leaders, the referendum will almost certainly produce a vote in favor of leaving the union.

As Europe’s third largest economy after Germany and France, liberal Britain acts as a counterweight to the protectionist instincts of many nations on the continent. Cameron, a conservative, is also an ally of Merkel’s when it comes to budget rules and enacting a free-trade agreement with the United States — which France is wary of.

Without Britain, Germany can only count on the support of smaller countries such as the Netherlands and Sweden to try to block the steady progress toward political union which will literally come at Germany’s expense.

Yet despite signaling lukewarm support for Cameron’s reform efforts earlier this year, when Merkel told lawmakers in London she was prepared “to pay almost any price to keep Britain in the European Union,” the German leader’s continued support for Juncker and willingness to entertain French and Italian demands for budget “flexibility” suggest her priorities have changed.