Germany has a problem with Europe

“Ms Europe has changed into Frau Germania,” ex-German foreign minister Joschka Fischer wrote at the beginning of April, suggesting that Ms Merkel, perceived as a truly European statesperson, had been gripped by national egotism. Ms Merkel actually had good reasons not to yield to pressure coming from the markets and the European public. Hedging the Greek aid package with many tough conditions and securing the IMF’s involvement took time but was necessary.

Financial support for Greece was never a question in Berlin – not only because of the euro’s stability but also because of national interest. Greek bankruptcy would in the first place hit German banks, whom Athens owes some 40 billion euro. It’s German taxpayers who would have to face the music. If Germany has a problem with Europe today, it’s not because of stinginess. Germany’s inability to summon up European optimism has had more to do with the changes taking place in its European environment than with post-unification renationalisation and normalisation.

Berlin needs to redefine its role in the EU. The problem is that the important premises on which it was based no longer apply. “The dynamic of Germany’s European involvement has always been defined by grand projects: single market, the enlargements, single currency, European constitution. Today such an emotional and elite-disciplining goal doesn’t exist,” explains Rainder Steenblock, the Greens’ former long-time European expert.

Integration was a springboard for the German economy

From a German perspective, all these projects had a lot in common. Firstly, they resulted in an EU in which Berlin felt in its element. The elements of federalism, the subsidiarity principle, structural aid, a European currency modelled on the D-mark, playing rules similar to those governing the German political system, all became fundamental to the EU’s functioning.

Germany was an example to follow: this served both the EU and Germany itself. Also the model of the EU’s international presence – the mission of a civilisational and democratising power – tallied neatly with the German political culture wary of any form of militarism or use of power. Secondly, all these milestones in European integration were perfectly in agreement not only with the raison d’etat of the post-war Federal Republic eager to anchor itself in the West but also with its more immediate interests.

Above all, they became a springboard for the German economy. Between 2000 and 2008, German eurozone exports grew from 19 to 25 percent of GDP. Enlargement to the east and the disappearance of currency risk gave a further boost to exports. In 2008 the ‘export world champion’ recorded a surplus of 200 billion euro.

German model is losing its attraction for Europe

For decades the German model and the European model fit perfectly. Even if projects like the euro or enlargement met with public reluctance, at least the elites realised that the successive steps in the construction of an ‘ever closer Union’ were fundamental to Germany’s prosperity and security. Today this sense is gone. ‘More Europe’ no longer powers the German model. The Greek crisis has shown that Europe is not becoming German at all.

On the contrary, instruments that until now best served the Germans – central bank independence, low inflation as an absolute goal, sovereignty in economic policy – are quickly losing their significance. From Berlin’s perspective, an important period in European integration is coming to an end. The German model is losing its attraction for Europe. If every country became a world champion in exports, who would be there to buy their goods?

The restrictive regulations of the stability pact – a German idea – introducing penalties for lack of budget discipline have proved ineffective – neither have they protected the EU from crisis nor resulted in economic convergence in Europe. Today the EU is heading in a direction that will require not only leadership from Berlin but also a profound revision of its way of thinking about and handling economic policy.

Berlin ideologically on the defensive

Germany needs stronger domestic demand, more public spending on education, research and innovation, a stronger services sector, argue the advocates of a new model of Germany’s economic growth. In the innovation index published last year by the German Institute for Economic Research (DIW Berlin), Berlin was ranked only ninth among the 17 developed countries and in terms of educational system and academic research financing it was right at the end.

A policy geared towards the traditional branches of industry (automotive, chemicals, engineering) that benefit from export guarantees, research subsidies, tax bonuses and government protection is a relic of a bygone age. ‘Germany should finally start saying goodbye to its favourite child: the gasoline car,’ writes Uwe Jean Heuser, a well-known economic commentator, in his book Was aus Deutschland werden soll. The future lies elsewhere – in advanced technologies and a well qualified workforce. Germany’s European problem doesn’t stem today from a longing for some neo-Wilhelminism but from a conceptual weakness that makes it difficult for Germany to play the role of the leader.

Berlin is ideologically on the defensive because it doesn’t really know what path is best for it. The fact that the domestic debate on the future of the economic model has coincided with great challenges in this field in the EU isn’t making things easier for the Germans. But the paradox is that an ever less German Europe may prove far more advantageous for Germany itself. The question is how quickly they realise this.

From Berlin

Angela is not for turning

In response to European criticism of her intransigent attitude on the Greek crisis, Angela Merkel maintained a hard line in a joint interview accorded to Corriere della Sera, Le Monde and El País. "Solidarity and solidity are inseparable. For Germany, this culture of stability and solidity is not negotiable," warned the German Chancellor, who added, "we are glad to be European, and we recognize the value of the euro. But I think that hard fought negotiation on points that are particularly important to us will make us stronger."

Further proof of Germany's intention to keep up the pressure on its European partners has come in the form of a confidential ministry of finance document on the reform of the Stability and Growth Pact, published by Handelsblatt. According to the German business daily, Berlin intends to demand "a rigorous and independent examination" of stability programmes in eurozone countries to be conducted by the ECB or a "select group of research institutes." And this is just one of a number of hard-hitting measures.

The document also advocates "the temporary suspension of structural funding for eurozone countries that fail respect public spending restrictions," which could be made permanent in extreme cases, and a 12-month suspension of European Council voting rights for countries in breach of monetary union rules. As a last resort, it even includes a provision for member-state bankruptcy which would transform a defaulting country into "a protectorate of the European Commission." Clearly delighted by these proposals which it describes as historic, Handelsblatthails Germany's bid to define "a much needed economic model," and further insists that "Europe has everything to gain if it continues in this direction. Germany should stick to its guns."