Germany - the Reluctant Hegemon
/05.04.2012/ Given the political and economic tremors all around Europe, Germany stands out as being at ease with itself. Long gone are the agonising debates about German decline. The business community is confident about the prospects for its continued global success. More of the same is expected on the balance sheets as the taste for German products does not subside in the emerging markets.
Secrets of good fortune
This comes as a surprise to many Germans themselves. One of the country‘s top historians claimed back in 2008 that the „streets of Berlin“ would be burning as the crisis unfolds. Yet, as Neils Bohr pointed out, nothing is more difficult to predict than the future. None of the traumatic scenarios has materialised. Even if the official unemployment figures, which the new methodology of the government puts at 6.6 percent, conceal pockets of rising poverty, they are still the envy of much of Europe.
The Germans also seem fulfilled politically in spite of the endless march of Länder elections with the feeling of a never-ending plebiscite they create. Professor Heinrich Winkler calls this the „charm of sobriety“ which the Germans have discovered in their political class. Glamour politicians are gone and the „folks like us“ are back.
To lead or not to lead
By now, Germany is slowly socialising itself into the reality of the crisis-struck Europe. This comes three years late. Decisive action at the outset of the crisis would have prevented the disastrous melting away of market confidence. What it would not have solved, and here the majority of German policy-makers have a point, is the question of moral hazard. Silvio Berlusconi’s U-turns on his reform pledges and Jeorios Papandreou’s sudden referendum announcement in late 2011, just as the successive tranches of EU assistance were being negotiated, sent shock-waves through the German political system and left a lasting scar.
For that reason, Germany is still struggling with its leadership position as fears of the risks involved and bills to be paid cloud the clarity of its vision. Nevertheless, Berlin is closer to accepting its unique role in shaping the future of the eurozone than at any time since the crisis erupted.
In the past, there used to be many more doubts about Europe in Germany than other countries had assumed. The angst reached climax when the euro was created. Some observers feared that anti-European parties would be launched. Today, however, the mainstream parties in Germany are decisively pro-European. In spite of the eurosceptic temptations inside the FDP leadership, heavily influenced by its dismal performance in the polls, an internal referendum on the ESM rescue in December 2011 gave the idea a green light. A grand coalition of pro-Europeans in the Bundestag is now a fact of life although there are significant differences concerning the detailed measures to be taken in crisis, especially when it comes to the issue of the eurobonds.
Out of cycle with Europe
The German experience in the last 20 years has been of formative importance for the country’s approach to resolving the eurozone crisis. Germany’s success has not been a gift of gods. Following the fall of the Wall, between 1990-95, the economy boomed on the back of a strong domestic demand while high interest rates had a negative impact on growth in the rest of Europe. The German fiesta ended in 1995 as the Bundesbank tightened its policy while the DM gained value. In the early days of the common currency Germany was the „sick man“ of Europe. It went through a painful fiscal adjustment (Agenda 2010) and it was well prepared when the current crisis struck. A very different situation prevailed in most other EU countries. This means that an important part of today’s eurozone crisis has to do with the fact that Germany has been out of tune with much of continental Europe.
Given that adjustment in Germany had been long and painful, there is now no appetite in Berlin to accept short cuts which Germany itself has carefully avoided. The burden of proof will therefore lie in the reform process, however long it takes. It will come at the expense of sweat and tears in the South and will sooner or later need to lead to the realignment of economic cycles.
Germany itself cannot rest on the laurels. As Alexander von Gabain, Chairman of the European Institute of Innovation & Technology puts it, Germany used to be the pharmacy of the world. Today, Boehringer Ingelheim keeps some of the old fire burning from position number twenty in the world. German high schools and universities are the not top of the league in the advanced countries. Demographic prospects are significantly worse than in France and the UK. Energy prices are rising in the aftermath of the sudden decision to phase out nuclear power plants. Berlin cannot afford inaction.
Genetically modified Europeans
The open question remains how much uniformity and convergence is good for Europe. The current approach assumes that all EU countries can improve their competitiveness and consolidate public finances alongside the German example. Leadership from Berlin would in that scenario be about ensuring a permanent correction of the macroeconomic framework in Europe while reaching out for the cheque book only as a matter of last resort.
But can the German model applied throughout the EU work in the longer term with a number of exporting, highly competitive countries, selling their products and services to each other and struggling to capture the same international markets, possibly contributing to the aggravation of the problem of global imbalances? It is not clear how the transition phase would be designed and whether temporary measures might be needed to cushion the economic, fiscal and social burdens in the weaker countries, requiring a new contract within the eurozone.
In terms of leadership design, the Helmut Kohl model is back with his idea of co-opting other countries in Europe, large and small, to the steering wheel. There is a shifting centre of gravity in German politics with Poland playing a much bigger role than a few years ago. On top of that, Berlin does not want to put all eggs in one basket. If there is a concern that German officials share at the moment, it has to do with France and its ability to stand on its feet economically after the presidential elections. There is more criticism of the Franco-German duo in Berlin than meets the eye. Therefore the prolific use of the term „Merkozy“ hides more than it reveals. Sarkozy is disliked for putting the clothes of de Gaulle which fit neither him, nor today’s situation. His reference at a recent press conference with Merkel to Europe d’Etats is seen as coming from another planet. Germany needs countries like Poland to convince France that intergovernmentalism is not a sufficient answer.
At the same time, on foreign and security policy issues, Germany is often on the back seat. Should a major crisis occur, it would need to work with friends and allies in Europe, itself being in demandeur position most of time. Germany has closed as many windows of opportunity for leadership in foreign policy in the recent months as it has opened.
Economically, France is going to be a major headache for Germany in 2012. Its chronic interventionist instinct cannot be cured on the spare of the moment. „The anti-liberal structure of France does not fit into a free-organised Europe“, is the way one German thinker puts it. Merkel herself believes there are historical reasons why Germany has to be in the embrace with France. In practical terms, her team has made the assumption that fiscal consolidation is still much more likely under Sarkozy than Hollande. Functional purposes rather than sentiment explains the unusual degree of support she has granted Sarkozy in the campaign.
Piecemeal engineering rules
Germany is often accused of being Europe’s new hegemon. Ironically, the word comes from the Greek and means nothing else but ... leader. Yet, if Germany is the hegemon, it is mostly by default. Berlin would have preferred for Europe to sort its own problems without the need for German intensive care units with billions of taxpayers‘ money to come to the rescue. The big question remains if Germany has the appetite to remain in the leadership position after the crisis subsides. One thing is clear, if we get there, it will be through mastering the art of muddling through. There is no leapfrog in sight.
* Autor jest Prezesem demosEUROPA - Centrum Strategii Europejskiej