Germany in Europe: the engine that couldn’t

As the EU's largest and richest member, Germany is desperate to make a success of the European project. Why is it reluctant to take a position of real leadership?

Reichstag, Berlin, Germany. Credit: Jeremy Graham / Alamy Stock Photo.
Reichstag, Berlin, Germany. Credit: Jeremy Graham / Alamy Stock Photo.

This essay originally appeared in ‘Past and Present: to learn from history‘, 2020, published by Bokförlaget Stolpe, in collaboration with the Axel and Margaret Ax:son Johnson Foundation.

Not that long ago, German chancellor Angela Merkel was feted as the uncrowned empress of the latter-day Holy Roman Empire, aka the EU. Her country boasted the world’s fourth-largest GDP, and Europe’s biggest. Number one in population, Germany occupied the strategic centre of the continent. According to a BBC poll in 2014, the heirs of Hitler were ranked as the most likeable nation in the world. (Currently, it is in the second spot after Canada.) Even better, for the first time in modern history, this Germany was neither threat nor prey. It was encircled only by friends.

The ‘Fourth Reich’, to recall a fashionable phrase after reunification in 1990, did not materialise. Primacy had fallen into Mrs Merkel’s lap like a ripe plum without a shot being fired. The new Germany’s politics were stable and moderate. It was safely embedded in the European and Atlantic community. So, this ‘soft hegemon’, was a shoo-in for leadership as the anchor and engine of the European Union.

At the end of her fourth term, Merkel might muse like Shakespeare’s Henry IV how ‘uneasy lies the head that wears a crown’. At home, she has stumbled thrice. Her first misstep was the Energiewende, the panicky reaction to the tsunami that inundated the nuclear installation in Fukushima in 2011. Only one worker there was killed by radiation; some 2,200 fatalities in the larger population were caused by factors related to the inundation. Yet Germany would close all of its nine nuclear power plants by 2022 and transition out of fossil fuels by 2050, she proclaimed. Today, Germany has the highest electricity costs in Europe, while its CO2 output has remained constant in the last decade. All told, Germany’s ‘energy transition’ might cost a trillion euros

The second blunder was to open Germany’s borders to about a million migrants and refugees in 2015. It was a lofty humanitarian gesture, but one that made Merkel’s ratings plummet while driving voters into the arms of the xenophobic rightwing ‘Alternative for Germany‘. Founded as a splinter party in 2013, the AfD entered into parliament in 2017 and now scores a stable 14 percent in the polls – even in the 20s in the former GDR. In the 2017 elections, the share of the Christian Democrats droppedby nine points.

Merkel’s third tragedy of good intentions was the euro. Driven by Germany, the project was to fuse Europe’s currencies into one – the boldest step yet toward a ‘more perfect union’. What might have made sense politically, has turned into an economist’s headache. How to impose a one-size-fits-all currency on countries that marched to different macro-economic drummers? There was ‘Club Med’ – from Iberia via France and Italy to Greece – that consistently overspent and tried to remain competitive by regular devaluation. Yet that backdoor was closed under the euro. Then there was ‘Club North’ headed by Germany, which insisted on fiscal rigour and ‘internal devaluation’, that is, wage restraint and efficient markets.

To keep them all in line, Germany invented the ‘Stability Pact’ that would limit debt and deficits. Above all, the pre-Merkel Maastricht Treaty was centred on a no-bailout clause that prohibited the ‘Europeanisation’ of the debts of member countries, with the frugal having to pay for the spend thrift. Call this the ‘Germanisation’ of EU macro-economic policy. The idea had two flaws.

First, one-size-fits-all was good for Germany and not so good for the rest. Basically, the currency is too cheap for Germany, forever driving its export surpluses – and too expensive for Club Med whose members, unable or unwilling to submit to painful reforms, lost competitiveness on international markets.

Secondly, serious imbalances developed. The most grievous example of course is Greece. Since 2010, it has received three bailouts worth 310 billion from euro member states and the IMF. As the richest economy, Germany paid the most. Italy looms as next candidate, but as the Euro-zone’s third-largest economy, it could not be saved, as Greece has been. Naturally, Merkel’s electorate is not amused to be cast in the role of Euroland’s largest debt funder.

The ‘best-laid schemes’ do ‘gang aft a-gley’. To translate Robert Burns into plain English: the Germans could crack the whip, but not win the race. They had mismeasured their power. In the run-up to monetary union, during the period of ‘convergence’, Club Med (and Ireland) did swallow the nasty medicine ordered by Herr Doktor. But once they were in, virtue begat vice. Now Italians could still splurge like Italians, but borrow like Germans. The PIIGS, as Portugal, Italy, Ireland, Greece and Spain used to be called, no longer had to pay a devaluation premium for loans denominated in francs, lire or drachmas. Bonds were now issued in solid-gold euros, and yields plummeted across Euroland. The PIIGS could suck in hundreds of billions at rates just a bit above Germany’s.

A first-year PPE student could have predicted what followed. Government spending soared, private borrowing exploded, real-estate bubbles built up – until they burst in the Crash of ’08. Germany was left holding the bag. Berlin did press the sinners to recant, but still did pay up or guarantee liabilities, which still did not endear Frau Merkel and her finance minister Herr Schäuble to the rest. We need not regurgitate the epithets ranging from ‘Fourth Reich’ to ‘crimes against humanity’, ‘arrogance’ and ‘imperialism’, with Nazi cartoons thrown in.

If this ‘Fourth Reich’ really had the power ascribed to it, it would have prevailed, teaching the profligates to reform their uncompetitive economies and practice the discipline they pledged when they joined. It would have imposed real ‘austerity’ on the rest, the bugaboo of Keynesians from the New Yorker to the Financial Times. In fact, the crisis countries were running deficits up to six per cent after the Crash. So, they enjoyed a cushion instead of suffering a German diktat. A truly hegemonial Berlin would have enforced the Maastricht Treaties that prohibit bail-outs. It would have reined in Mario Draghi, the chief of the European Central Bank until 2019, who defied the ECB’s modest mandate, turning it into a European Fed, an unstoppable money machine. The ECB pumped in liquidity by the trillions while buying up debt. Effectively, Euroland has collectivised member state liabilities, making the worst German fears come true.

Though deficits had dropped into the two-to-three percent range for Club Med countries by 2019, debt as fraction of GDP is way above the 60-percent limit prescribed by the Stability Pact. In Italy, it soared from 115 percent in 2010 to 132 percent in 2019. By then, Italy was well on the road to burst the deficit-limit, as well.

Yet the most serious challenge to Berlin transcends economics. It emanates from a France that has tried to wrest primacy from Germany since the days of Charles de Gaulle. Emmanuel Macron, who became president in 2017, wants a joint eurozone budget, a eurozone finance minister, a body overseeing bloc-wide economic policy, and a separate parliament for Eurozone members.

This is (soft) power, national politics in the name of Europe. Macron’s purpose is obvious: create institutions where in the absence of Britain, Germany and its smaller allies could be more easily outvoted and the others could get their hands on the kitty of the EU’s Croesus. The unarticulated idea is to take from Heinz to give to Pierre, Pietro, Pedro and Petros – the kind of ‘transfer union’ that is the devil’s work in German eyes. If the French-led bloc prevails, say good-bye to the fiscal discipline and market-based reforms Germany has tried to impose on the rest. Not to put too fine a point on it, the euro was to shape the European economy in Germany’s image. Instead, the currency has become a stake in a power game between two ancient rivals that Berlin cannot dominate.

The paradox is palpable. By all objective measures – GDP, population, central strategic position – Germany was a natural candidate for the European throne in the glory days of Merkel’s chancellorship beginning in 2005. Yet the crown is no longer hers. Nor will it go to Berlin as such any time soon. Why not?

For one, leadership requires a sense of self and a will to self-assertion that Germany carefully tries to suppress. Not that Berlin would refuse to use its ample power, as the attempt to ‘Germanise’ the euro and Europe’s refugee policy shows. But national pride, let alone nationalism are virtually taboo words. Instead it is ‘Europe’ first and last – the ‘Europeanisation’ of Germany. There is no appeal to the ‘grandeur’ of the nation as in France. Nor an equivalent to ‘Britannia, rule the waves’. Nor the invocation of exceptionalism that suffuses the American political discourse. ‘Make Germany great again’ would never cross the lips of a public figure this side of the far right.

History, especially that of the Third Reich, provides the explanation. The battle cry is ‘never again’ – never again conquest, imperialism and racism. To boot, self-assertion abroad requires a strong state that concentrates power on a single point, as Hamilton advised in the Federalist Papers. Yet a lifetime after Hitler, Germany takes pride in a country that is the total opposite of the Third Reich. In the Second German Republic, power is finely balanced, the state is comparatively weak and civil liberties as well as privacy laws reign supreme.

‘Never again!’ also implies atonement and rehabilitation in the eyes of the world. Unlike other nations who have to live down an evil past, Germany has internalised its own. The symbols abound – from the official annual remembrance of the liberation of Auschwitz to the gigantic Holocaust memorial in the centre of Berlin. Chancellor Merkel has declared the security of Israel as a ‘part of German reason of state’. With a vast majority, the German parliament passed a strongly-worded resolution declaring BDS ‘anti-Semitic’ in 2019. Opening Germany’s border sin 2015 as a grand moral gesture, Merkel wanted to show Germany’s ‘friendly face’ to the world, adding that Germany was a ‘good country’.

‘Good countries’ with ‘friendly faces’ do not impose their power on others, the chancellor might have added. So German power must be safely ‘socialised’ in institutions like the EU and NATO. No ‘Alleingänge’– unilateral forays – for the nation that once single-handedly subjugated Europe and was almost destroyed in the process.

It may well be true that its vast assets should deliver primacy to Germany in Europe. But power is not just a matter of raw strength; it also requires legitimacy rooted in consent, which breeds authority. In their best days empires such as Rome, Britain and the United States enjoyed that legitimacy. In the German case, the jury is still out a lifetime after the demise of the Third Reich.

Historical memories have not died. Recall the posters in Athens during the worst days of the Greek crisis. These showed Angela Merkel with a Hitler moustache or the uniform of the BDM, the Nazi youth organisation for girls. Nor is it just foreigners who resort to Nazi imagery to discredit a particular German policy. Even in the German domestic debate, the Nazi comparison functions as a powerful political weapon.

Third, the Germany that once went to the gates of Cairo and Moscow is instinctively averse to the use of force. No wonder given the cosmic disaster of Germany’s grab for hegemony in two world wars. Twice burned, thrice shy. Invoking the past, Germany has evaded military action for fifty years. When it did act, as in the War of the Yugoslav Succession or Afghanistan, it was only behind the United States and with symbolic contingents to minimise risks.

The diffidence is matched by the lack of useable military power. The current army has shrunk from 680,000 during the Cold War (West plus East Germany) to 180,000. Defence outlays have dwindled from 3 percent of GDP in the Cold War to 1.2 (though given growing GDP, the absolute numbers are rising). Germany’s panzers, once the spearhead of blitzkrieg, have dwindled from 3500 to 280, and out of these, one-half was in operative in 2018. The Third Reich built 250 U-boats; the Federal Republic is down to six – all out of action in 2018. Projection forces at best number 10,000, major surface combatants number 14 (as compared to the US Navy with 300).

The hardware gap reflects a larger issue. Germany portrays itself as a Friedensmacht, as a ‘power of peace’ that will study war no more and instead focus on institutional cooperation and peaceful conflict resolution. This stance comes with the painstaking refusal to assert German power openly, let alone loudly. Yet in the real world, power entails the willingness to match policy with force. German strategy, not to put too fine a point on it, is truncated at the point where diplomacy segues into war, as Clausewitz preached. History knows no great power that forgoes military power in favour of principled peacability. So Clausewitz does not live here anymore. Germany is a one-legged leader. Unlike Margaret Thatcher, Merkel and her successor are bound to ‘punch below Germany’s weight’.

As overreach characterised the Second and Third Reich, ‘underreach’ marks the Second German Republic. To seek glory, let alone dominion, is not the new German way. It will seek safety in community and celebrate its Kultur der Zurückhaltung, its ‘culture of self-restraint’. Morality at this point nicely matches practicality and self-interest. The ‘culture of self-restraint’ produced fabulous benefits. It delivered to Germany rehabilitation and respect at little risk and even less cost. While the US, Britain and France paid dearly for their military engagements round the world, the Germans could tend their own garden, reaping riches and trust. When pressed by its allies to engage in wars of order, Berlin could always invoke it sinful past (‘We have learned our lesson’) to justify abstention in moral terms. In the harsh world of realpolitik, such a policy is known as free-riding; ‘let George do it‘, as an American phrase has it. Such beneficial habits will not be easily unlearned.

Yet the foundations are shifting. Security at a large discount, as provided by the US, is no longer a given in the Age of Trump. Actually, America’s strategic shift began under Barack Obama who drew down forces in Europe to a bare 30,000, down from 300,000 at the height of the Cold War. Second, the ‘end of history‘ was just a short break. Under Vladimir Putin, Russia is again pushing in from the east, having grabbed Crimea and South-East Ukraine while probing NATO’s positions in the Baltic and the North Sea. In Syria, Russia has bought itself a client state – half a century after Nixon and Kissinger had extruded the Soviet Union from its key outposts in the Middle East.

Germany could turn into Friedensmacht because it could count on American protection in a world where strategic conflict had waned after the end of the Soviet Union. Nor did the Europeans have to worry about this Gulliver in their midst. The ‘Fourth Reich’ remains a figment of the imagination. The problem is rather too little German power in a world of increasing geopolitical risks.

Add a stagnant Europe that has lost 12 percentage points of global GDP since 1970. Add also Franco-German rivalry and populist authoritarianism in Eastern Europe, not to speak of the loss of Britain that is bound to weaken both the voice and the military muscle of Europe. The Orbanization of Hungary may not matter that much. Italy, though, is a more worrisome harbinger, given the clout of the popu-nationalist Lega. Italy is after all a founding member of the EU.

Invoking a flock of sheep as metaphor in 2017, Germany’s then-defence minister Ursula von der Leyen would have Berlin ‘lead from the centre’. Great powers, though, lead from the front, never mind that Barack Obama had apparently told the New Yorker that his motto was ‘leading from behind’. Given how profitable and pleasant its ‘culture of self-restraint’ has been, Germany will not soon re-acquire the habits of a great power and so prefer the protective herd to the vanguard.

Yet the EU flock has become unruly, splintering along ideological/nationalist lines while Britain has absconded. Add an even graver point: a rapidly shifting international system is pressing in on Europe and threatening to marginalise this once mighty continent. As Berlin blithely mingles with the metaphorical sheep, America, China and Russia are tearing down the fences and trampling the grass. Luckily, the wolves are not yet at the door, but the Europeans can hear them howling. Celebrated as predestined shepherd in the glory days of Angela Merkel, Germany in the 2020s is an uncertain giant who has defied expectations, good or bad. It is neither a ‘Fourth Reich’, nor a leader of the rest.


Josef Joffe