Can Europe Make It?

The geopolitical implications of Europe’s debt crisis

Up until very recently, geopolitics was one of the most unpopular and outdated intellectual concepts in contemporary Europe. The eurocrisis has changed that.

Sotiris Serbos
28 June 2015
Putin, Merkel, Hollande and Poroschenko at the Minsk Summit 2015. flickr/Poggemann. Some rights reserved

Putin, Merkel, Hollande and Poroschenko at the Minsk Summit 2015. flickr/Poggemann. Some rights reservedThe unveiling of the debt crisis in Europe foregrounds the resurgence of the forgotten discipline of geopolitics, along with its significance as a credible analytical tool in current transatlantic foreign policy analysis. Up until very recently geopolitics was one of the most unpopular and outdated intellectual concepts in contemporary Europe. The period of geopolitical uncertainty which started in 2009 has reintroduced strategic tensions between European powers. These tensions have paved the way for introducing a new geometry of state relations that will continue altering the balance of power among key EU regional groupings.

The predominance of the creditor-debtor divide rather than a consistent European-wide response to the crisis, apart from sustaining systemic ambivalence, structural vulnerability and loss of confidence, above all introduces elements of geopolitical uncertainty. Due to these creditor-debtor relationships rather than any other form of geopolitical friction, a number of core EU balances have upset intra-European power correlations and progressively pave the way for the evolution of geopolitical dilemmas impacting on both Europe and the US. On top of that, growing US concerns over the strategic implications of Europe’s debt crisis and the geopolitical necessity of maintaining an unbroken and coordinated Atlantic West, increase the need for a forward thinking transatlantic analysis.

Rejecting the eurozone’s rebalancing: what happens next?

As long as Europe fails to escape its debt crisis, neither can the global economy. What comes next involves confessing an inconvenient truth about the dominant economic paradigm in the Eurozone (EZ) and exposes the shortcomings of the creditors’ economic thinking over the past five years. In other words, the creditors’ export-led model cannot survive without a debtors’ consumer-led model. But the debtors' acceptance of fiscal discipline (Club Med, Eastern Europe) has an inevitable consequence -Germany’s growth model in Europe’s present economic environment is simply unattainable.

However, the strong vested interests that have shaped Germany’s long-lasting one-sided export-oriented economy, have prevented a shift of strategy or the launch of such a promising leap forward. As such, the outlook for economic growth in the EZ continues to remain worryingly bleak. At the same time, even if a further escalation of Europe’s debt crisis has been avoided, a lack of German rebalancing paves the way for introducing a ‘muddling-through’ baseline scenario that describes a period of persistent low growth and prolonged stagnation in the EU, effectively encompassing all the risks involved for Europe, the global economy and world geopolitics.

How does the US react in such an alarming situation? German policy is literally opposite to that of the Americans about what needs to be done to prevent a new economic crisis in Europe, as well as to enhance the global economy’s recovery through a revival of EU economic growth. As a non-member of the EU, US leverage in Europe’s economic and financial affairs is clearly limited. That being said, Washington approached Berlin quickly enough to underline the stakes involved for both the transatlantic and the global economy; exercising its influence over the pressing need for a revision of Germany’s growth model to address the wider issue of macroeconomic imbalances in the euro area. America’s recognition of Germany’s privileged role as the lead actor to stabilize the EZ, unlock Europe’s economy and restart its economic growth, goes hand in hand with Germany’s acceptance of a more balanced approach to addressing the root causes of EU’s debt crisis and avoid the next round of a sharper global economic crisis.

A collapse of the Single European Market?

However, if the choice of a more diverse and expanded burden sharing does not gain ground, a crucial point of no return will inevitably be reached. At that critical moment, even if the largest creditor (Germany) is willing enough to follow policy U-turns under the umbrella of an expansionary strategy for reviving EZ’s stagnant economy, Germany’s financial capabilities will be insufficient to implement such a mega-plan. Having established a prolonged period of entrenched recession in Europe’s South with debtor countries being trapped in anaemic growth and unable to sustain manageable surpluses for repaying their debt to creditors, Germany by itself will no longer be able to pull its economic weight and devote outstanding resources to calming the global markets’ increasing fears, due to the elevated default risks posed by exhausted debtors.

The amount required for such provisions will simply not be available. Last but not least, when it comes to the economy, expectations shape the environment. If the policy shift doesn’t come to fruition in Southern Europe, their governments will face immense difficulties to remain anchored in the EZ or the EU and they will opt to default. They will escape from Berlin’s inflicted austerity but they will pull together all the others. Security issues will then become essential and the path to protectionist policies will be more than open (as one would expect the Single European Market to collapse).

The alternative: a Middle Europe geopolitical vision

With geopolitics working as a medium-term strategy, and considering that the biggest creditor is aware of such an unavoidable scenario, is there any alternative strategy for Berlin? What if Germany, a prudent and risk-averse country by definition, considers a fall back option? Still in time to act ahead of unprecedented events, Berlin decides the country’s withdrawal from the euro area; allowing it to pull up resources for unfolding its Middle Europe geopolitical vision and Germany’s sole dominance in central and eastern Europe (CEE).

In the event that Germany refuses to go down such a dangerous path full of security-driven concerns, the only available policy instrument for sustaining its export-dependent growth model would involve the pursuit of a greater strategic approach and the establishment of an enhanced partnership with Russia, bearing in mind that a purely economic perspective based on commercial realism would recognize the benefits of promoting a German-Russian axis; enabling a further boost of German exports due to the structural weaknesses of Russia’s economy and the evident insufficiencies in a wide range of its sectors. Nonetheless, the US would decisively act to minimize such a risk factor which poses serious strategic implications for its policy in Eurasia.

Taking into account the methodology that has been followed, Europe’s economic and financial rebalancing is approached as a medium-term objective associated with the geopolitical implications of all the actors involved. Specifically, it is very useful in shedding light on how far the crisis in Ukraine and the strategic importance of a wider Europe signal the changing geopolitical tactics followed by the US, on the way to progressively establishing a functional balance of power that keeps Europe united and capable of sustaining its slow but determined pro-integration drive. In effect, this lays the foundations for creating a win-win cooperative model that fits the strategic interests of all of the transatlantic community’s key players. As a result of Germany’s central role and risk factor status in Europe’s present economic and security environment, Berlin’s policy planning is being viewed as the cornerstone of the above described medium-term strategy. 

The role of Germany

The size of the Russian market to accommodate German exports, side by side with Germany’s (medium-term) energy dependence on Russia, are evidence of Moscow’s strong bargaining position vis-à-vis Berlin’s weaker status. With the European project still suffering at risk, it is quite evident that - via Ukraine - President Putin has engaged Russia in a wider “divide-and-rule strategy”.

By anticipating and investing in Europe’s step by step spill-back process due to the deconstructing impact of the EU debt crisis, the Kremlin’s longer-term geopolitical strategy entails bringing about a less united and more fragmented Europe. With the EU suffering a schism from which it might never recover, Russia would try to gain ground via a Franco-Russia relationship to contain US influence, combined with a German-Russian axis that would allow Germany to pursue its influential role in Middle Europe.

To avoid a dangerous escalation of Europe’s security dilemmas due to intensified competition, Germany’s pivotal role in addressing Europe’s security and economic concerns can by no means be neglected without creating a major risk factor for the long term objectives of US strategy in Eurasia. If European integration stalls, the US will need to contain German power and avoid its alliance with Russia. With the root of the problem clearly lying in Germany, the crisis in Ukraine signifies the overturn of such a possibility, with Germany remaining locked within the EU framework.

The impact of the Ukraine crisis

The geopolitical events that take place in Europe as a consequence of the crisis in Ukraine enable the US to pursue a balancing strategy over Germany’s power in order for Germany to contribute actively and in a more constructive manner towards securing the future of the EU and enhancing the new landscape of European security. In this respect, the Ukraine crisis creates favorable conditions for the reactivation of the Franco-German axis, which restarts the process of a more functional and coherent EU. Likewise, it further facilitates German efforts for the joint exercise of a geopolitical role compatible with the transatlantic views as expressed.

As a result of the security dilemmas placed by the US, Berlin joins forces with Washington to face Russia’s aggressiveness. Indisputably, without US support and the guarantees it provides for Europe’s security concerns, the geopolitical role of Germany in CEE is in doubt.

The second factor responsible for putting extra pressure on Germany’s Russia policy, is related to the strong reactions to counter Russia’s aggression on behalf of CEE countries, with Poland being the most prominent. Failure to do so would indicate the obvious risk of Berlin’s Middle Europe vision being dismissed. After all, the group of CEE countries have remained suspicious and never fully consented to be put under Germany’s absolute dominance. Because of Russia’s growing assertiveness and the heightened security stakes involved, Germany would be unable to defend them on its own.

Finally, CEE countries do not wish to be excluded from a series of critical political negotiations that will follow between Germany and the United States on the regional security outlook and assign this role exclusively to Germany.

Berlin locked in the transatlantic front

In light of the above, concerning Germany’s policy over Russia in terms of sanctions imposed by the west, it is true that Germans cannot step away from this context anymore; beyond trying to play a conciliatory-bridge builder role and being involved in diplomatic maneuvers as a means of avoiding another round of escalation surrounding the Ukraine conflict. If Berlin decides to break the transatlantic front, it will pay a high price with the obvious risk of losing ground in CEE. That being said, it is not a coincidence that in the end, the Germans went against the Russians.

At the same time, neither has Russia exerted strong pressure on Germany, presenting it with a dilemma which, at least currently, it does not wish to confront. If it makes such a move, Russia is at risk of losing again. Besides, President Putin will have to opt for breaking up the western alliance at a hopefully more appropriate future date. In addition, despite any reactions, there is no sign of strong pressure within Germany itself for withdrawing its support over sanctioning Russia. Although some form of ‘special relationship’ between Berlin and Moscow will continue to exist, the real issue has always been to devalue its future prospects.

In conclusion, by choosing a balance of power policy in Ukraine, US strategy prevents a potential future opening of Germany to Russia, locks Germany in the transatlantic framework and regulates Berlin’s European policy. As the risk of an accident always lurks, one should bear in mind that the US unfolds its policy in a remote context. What is more, the damaging effects of rising Euro-skepticism and poisonous nationalism have still not been adequately reversed to avert the symptoms of a Europe that has been dismantled.

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