Germany goes global: farewell, Europe

The great engine both of Europe’s economic strength and its political unity is falling out of love with its creation. The challenge to the continent is profound, says Ulrike Guérot.
Ulrike Guerot
14 September 2010

The long, hot German summer managed to drain the energy from the vivid debate that had preceded it regarding Germany’s role in Europe. But the related questions that had dominated the early months of 2010, highlighted in particular by Greece’s debt crisis - what happened to German leadership, and (more broadly) why has Germany fallen out of love with Europe - have not gone away.

Germany’s extreme reluctance to aid Greece, and its visible retreat from its former role as committed leader of the European Union, had led many foreign observers into the unfamiliar stance of charging Berlin with not being European enough (see "Germany, Greece, and Europe's future", 13 April 2010).

In many EU states, the anxiety about the direction of Germany’s European policy turned towards the sharp criticism that Germany had benefited from the eurozone and the ability to export to other members of the single-currency - thus basically living on the back of its partner economies, without giving them a chance to grow. This reproach was most pointedly articulated when France’s economy minister Christine Lagarde (among others) complained about the asymmetries of intra-European trade relations and Germany’s low domestic demand.

Most German publications took a very different line: not only did they support the policy of the chancellor, Angela Merkel, but they continued to promote the view that the German economy is simply the best and that nothing fundamental needed to change. If other countries have a problem with the euro - too bad; Germany has none! Moreover, if everyone would only follow the German example, especially with respect to debt-management, there would be no crisis.

Such was the dominant attitude on both sides during the weeks of the Greek crisis between February and June 2010. At the height of mid-summer, a hot autumn was expected in which pressure from financial markets would likely bring another EU country (Spain, Portugal, even France?) near to financial collapse; test the huge euro-aid package of 8 May 2010; and force the EU to reveal how real is its political commitment to improve Europe’s governance structures and “economic government”.

The huge gap between what other countries expect Germany to do and what Germany is ready to do has left its mark. But it looks now as if the real autumn scenario will be different from the anticipated one. There are three reasons for this.

A cool autumn

The first is a change in the economic weather. Germany at least is in full recovery mode. The annualised growth-rate is back to 3%, in comparison to 2.2% in the first quarter of 2010 (and Deutsche Bank even forecasts 3.5% for the year); this would be the highest rate since German reunification in 1990, and is already enough for some local hyberbole (the press entitled the moment the “up-turn XL” [Aufschwung XL], and economy minister Rainer Brüderle referred to “a second German economic miracle”. 

The job-creation and unemployment figures are also hopeful: the number of unemployed people is predicted to remain below 3 million for the rest of the year, which would be the lowest figure for a decade. Germany’s famous exports are strong, especially of the automobile industry (Volkswagen alone sold 4 million in May 2010). The overall figures for June 2010, at €86.5 billion ($110bn), were an increase of 28.8% over June 2009; and exports for the first half of 2010 are 11%-12% up. German-Chinese and German-Russian trade and export figures are as good as ever.

These figures have dissipated the fear of another financial meltdown. The mood in Germany is already post-crisis - to the extent that people take pride in German economic instruments such as Kurzarbeit, and even wonder if the crisis ever really shook the country.

The second reason is a change in the political weather. The economic recovery has ended the speculations about the end of Angela Merkel’s government. The defeat of the Christian Democrat Union (CDU)-Free Democrat Party (FDP) coalition in the North-Rhine-Westphalia regional elections on 9 May 2010, and its poor performance over the election of a successor to Horst Köhler as the country’s new president (with Merkel’s favoured candidate, Christian Wulff, needing three election-rounds finally to be elected on 30 June), created widespread doubts over the government’s ability to lead and even survive. The criticism of Angela Merkel herself also increased. That moment too has passed.

The third reason is a new clarity about German national ambitions or at least the perception that they exist. At best, it became a little clearer that Germany has no ambitions at all to lead the European Union any longer; but that, as much as any other state, it seeks to benefit from its international links without caring overmuch about European politics. The New York Times has even characterised Germany’s real aim as to become a great Switzerland: wealthy and not politically responsible for Europe.

A huge transition

This combination of economic revival and international clarity confirms that there is indeed, no German national “masterplan” - but there is a definite tendency towards what might be called “going global alone”. This leaves other European countries with a key choice - which is no longer a German problem, as many in Germany think that ultimately Germany can do its own business in the world. To be sure, this is more a policy by default than a strategic vision; and if it is probably good for Germany, it is not necessarily so for Europe. In short: Germany is outgrowing Europe!

The implication of this shift is that Germany is replacing foreign policy - including European - by trade policy. The export dependency of Germany means that the German heart goes where the export goes. A German civil servant, asked why developing a common European policy towards China is so hard - and why the existing German position is so different from the average European one - simply replied: “Because our trade figures with China are so different from all the other EU states’”. More precisely: because Germany is the only European country that has a real trade (and therefore strategic) interest with China.

If the German economy moves increasingly beyond the borders of Europe, then the German heart moves away from Europe. And this is not by any anti-European intention, nor according to narrow national ambition - but only because Germany needs to “go global” to secure its economic future. “Europe”, by contrast, is not a political project that can be pursued or held against economic trends.

The argument, therefore, is more subtle than that Germany is no longer European; rather that it is becoming more truly European (more “normal”, more like the other European countries, no longer “over-European”) - and will probably remain so. A realistic way of characterising the new Germany is that a European Germany is going global with or without its fellow Europeans, and that the choice of whether to follow will be theirs and not Germany’s. So Germany can and will be the engine to drive the EU economy into the world market, but only on condition that the other EU countries want this to happen and are ready to make their own national effort.

The huge transition that is occurring is that Germany (or more precisely, the German role in and for Europe) is shifting from geopolitics to geo-economics. During the cold war, Germany was the tipping-point country between east and west, the buffer-zone for Nato, the most sensitive border in Europe, and the junior partner of the United States; it is now the tipping-point country in the economic orientation of the European Union, one that (nolens volens) will determine the path the European economy will take.

A new chapter

But this still leaves a question that will only be answered when it becomes clear how sustainable and solid the German recovery is. After all, if things are going so well for Germany, why should it even bother with Europe; if its economic model is still a shining example for the European economy, why should it engage with (for example) French ideas about economic government?

Here, there are four reservations about the German success-story. First, the German banks’ “stress-test” on 23 July 2010 was less than convincing, with its criteria and various last-minutes changes to the questionnaire leaving markets unsatisfied with the results; the state-bonds (and trash-assets) apparently held by the regional Landesbanken remain of especial concern, with many saying that the number of Landesbanken needs to be reduced.

Second, the G20 summit in Toronto on 26-27 2010 was disappointing. The serious regulation of financial markets repeatedly promised on both the G20 and the European Union levels after the global financial crisis of 2008-09 has not been consistently pursued or implemented; and beyond the rhetoric, no coherent effort to improve the “economic governance” of the eurozone has been undertaken. 

Third, the German government does not yet have a convincing strategy for what the French call la rentrée. The key internal coalition dispute about tax-reform between the conservative CDU and the liberal FDP is ongoing, and a clear vision of what this government stands for is still missing.

Fourth, there isn’t a glimpse yet of a real “European revival”, in the sense of a bold discussion on what comes next for Europe and on what is needed. There is no sign of new and greater energy from Germany for Europe on any of the levels needed: the eurozone’s governance, the union’s enlargement (regarding the Balkans or Turkey); the use of the new European external-action service; and critically, the question of the next (2014) financial framework of the EU.

There will be fierce battles over payments in the coming period, especially among the big member-states. The fear is that a German public that has already lost its love for Europe will become even more alienated when the price-tag of its contribution to the EU budget becomes clear. This outcome is all the more likely since no one in Germany has a strategic conception for that same budget.

It’s not that the Greek and eurozone crises of the first half of 2010 are over. It’s not even that much has been done or will be done on the European policy level to solve them. And it does not seem as if there will be much talk about the question of economic convergence.

It’s more that Germany is getting used to feeling comfortable in its position as the biggest elephant in the zoo, in its indifference to its European partners, and in its certainty that nobody is likely or able to ride roughshod over it; without Germany even needing to move too much. And that the European idea may be squeezed under Germany’s new weight. Once all that is fully registered, the consequences will be momentous.

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