Europe Does Ger­many rule mat­ter? ?

Amid an EU in tur­moil sits Ger­many with its huge trade sur­pluses and ne­go­ti­at­ing might. Paul Hockenos looks at al­le­ga­tions that the rules are fixed to favour Deutsch­land above all

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Ger­many’s chan­cel­lor An­gela Merkel is con­vinced that she’s do­ing ev­ery­thing in her power to res­cue the floun­der­ing European Union from its cri­sis, with­out ques­tion the most dire of its ex­is­tence. Soundly pro-European, she be­lieves, as most Ger­mans do, that their af­flu­ent, über-lib­eral na­tion is un­think­able with­out the bloc, which laid the foun­da­tions for its post-war econ­omy and for uni­fi­ca­tion, too. But a host of ob­servers, not least United States pres­i­dent Donald Trump, who met with Merkel last week, ac­cuse the EU’s pow­er­house econ­omy of turn­ing the EU into a ve­hi­cle that per­pet­u­ates Ger­many’s own well-be­ing, in­creas­ingly at the risk of the union’s sur­vival.

The pre-Brexit EU of 28 coun­tries, which ex­tends from Fin­land’s fjords to shores of Cyprus in the Mediter­ranean, boasts ac­co­lades aplenty, hav­ing guided the con­flict-plagued con­ti­nent through an un­prece­dented stretch of peace and pros­per­ity. But en route to a fully uni­fied con­ti­nent – the goal in­scribed in its found­ing treaty signed 60 years ago to­day – the EU has sput­tered, stalled and lost its way, just as anti-EU pop­ulists are cel­e­brat­ing hey­days in ev­ery mem­ber coun­try.

“Brexit was a turn­ing point,” says Ge­sine Sch­wan, a lead­ing So­cial Demo­crat and for­mer pres­i­dent of the European Univer­sity Vi­ad­rina in Frankfurt. “The EU had been in a bad way for awhile, but with Brexit it was clear that the EU was in a process of dis­in­te­gra­tion, not any longer one of in­te­gra­tion. Some­thing dras­tic has to be done.”

Giles Mer­ritt, editor of the Brus­sels-based jour­nal Europe’s World and book au­thor, most re­cently of Slip­pery Slope: Europe’s Trou­bled Fu­ture agrees that it’s a mess. “The EU has be­come a ram­shackle mon­stros­ity. It’s not in danger of col­laps­ing but rather stag­nat­ing to death.

“All eyes look to Ger­many. Not just be­cause it’s the big­gest and most suc­cess­ful EU coun­try, but more im­por­tantly be­cause it’s the most po­lit­i­cally sta­ble state.” Ger­many has be­come so dom­i­nant in the EU that many now call Ber­lin, not Brus­sels, the real cap­i­tal of Europe. Ger­many’s for­mer part­ner in EU pol­i­tics, France, is cur­rently led by a left-cen­tre gov­ern­ment hob­bled by its deep un­pop­u­lar­ity. France’s econ­omy is fal­ter­ing and the Euroscep­tic far right leads opin­ion polls. For now Ber­lin ap­pears to be on its own.

The prob­lem, ac­cord­ing to crit­ics such as Sch­wan, is Ger­many’s self-serv­ing at­ti­tude across is­sues from the eu­ro­zone to trade and the en­vi­ron­ment. “Ger­many uses the coun­cil to fur­ther its own short-term in­ter­ests,” says Sch­wan, re­fer­ring to the European Coun­cil, the EU’s col­lec­tive pres­i­dency, com­prised of the heads of the mem­ber states. “Since the bank­ing cri­sis, Merkel and [fi­nance min­is­ter Wolfgang] Schäu­ble have acted ex­tremely ir­re­spon­si­bly, fight­ing for power rather than for poli­cies that ben­e­fit the en­tire EU. And then in their own coun­tries, the na­tional lead­ers sim­ply com­plain about the EU, as if they have noth­ing to do with it.” It’s no won­der, says Sch­wan, the EU scores so low in na­tional polls.

Ger­many has come un­der heavy fire for its eco­nomic poli­cies within the eu­ro­zone, the sub­set of 19 EU coun­tries joined in a mon­e­tary union. Lead­ing economists such as Joseph Stiglitz and Paul Krugman con­tend that the euro sim­ply can­not work in an eco­nomic zone that is not tightly bound to­gether, both eco­nom­i­cally and po­lit­i­cally.

“The eu­ro­zone was flawed at birth,” Stiglitz ar­gues. “The struc­ture of the eu­ro­zone – the rules, reg­u­la­tions and in­sti­tu­tions that gov­ern it – is to blame for the poor per­for­mance of the re­gion, in­clud­ing its mul­ti­ple crises”. Given Giles Mer­ritt editor of Europe’s World the eco­nomic di­ver­sity, there needs to be mech­a­nisms “that can help those na­tions for which the poli­cies are not well suited”.

Stiglitz and oth­ers con­tend that Ger­many, which ben­e­fits enor­mously from the euro, has im­posed its tra­di­tional eco­nomic norms – tight, low-in­fla­tion mon­e­tary pol­icy and con­ser­va­tive, lowdebt fis­cal pol­icy – on the rest of the eu­ro­zone. This in­cludes the coun­tries of south­ern Europe, which, with very dif­fer­ent economies than in­dus­trial pow­er­house Ger­many, have suf­fered and, in the case of Greece, is un­able to re­cover with­out debt relief, public and pri­vate-sec­tor in­vest­ment, or cur­rency de­val­u­a­tion.

It’s not alone in this but Ger­many has re­fused to sac­ri­fice eco­nomic sovereignty in or­der to turn the eu­ro­zone into a tightly bound eco­nomic en­tity in which its mem­bers, like the fed­eral states in the US, Ger­many, or Canada, vouch for one an­other. Richer states come to the aid of poorer states, un­til they get back on their feet. “But Merkel rules out any fur­ther form of debt or risk shar­ing in the eu­ro­zone,” says Giegold, who notes that the es­tab­lish­ment of an in­de­pen­dent cen­tral bank, the ECB, was al­ready a step in this di­rec­tion, as were the mas­sive bailouts of the south­ern Euro­peans. For the eu­ro­zone to func­tion it must com­plete its in­te­gra­tion, which means is­su­ing eu­robonds or in­sti­tut­ing the likes of un­em­ploy­ment in­sur­ance, he says. More con­ser­va­tive Ger­man economists ar­gue that it has bal­anced its own books through re­stric­tive eco­nomic poli­cies, and so should oth­ers, too. They point out that coun­try’s econ­omy in the 2000s was in poor shape: job­less­ness soared, as did the na­tional debt. “But Ger­many un­der­took re­forms that cut taxes for those who could in­vest and loos­ened up labour laws,” says Jür­gen Matthes, an econ­o­mist at the Cologne In­sti­tute for Eco­nomic Re­search, who cred­its the pro-mar­ket re­forms of the 2000s with Ger­many’s spec­tac­u­lar re­cov­ery. “In­vest­ment and spend­ing did in­crease at the same time that Ger­many stream­lined its econ­omy,” he states, coun­ter­ing scep­tics who claim coun­tries such as Greece can’t slim down and re­cover at the same time. “Ger­many’s debt came down, too.”

Matthes be­lieves that the Ger­man pre­scrip­tion is now bear­ing fruit in Spain and Por­tu­gal, where bud­gets were reined in, bad banks elim­i­nated, and labour mar­ket re­forms in­tro­duced. Their economies have turned the cor­ner, he says. “Spain’s re­cov­ery shows that the Ger­man way is right,” he ar­gues. Greece’s prob­lem, he says, is that the left-wing Syriza gov­ern­ment re­fuses to make the re­forms de­manded of it.

An­other bone of con­tention is that Ger­many has chalked up record-bust­ing trade sur­pluses in re­cent years, the 2016 sur­plus of €253 bil­lion (Dh999bn) ex­ceeded that of 2015, also a ban­ner year, by €8bn. The turnover has re­sulted in much higher than ex­pected tax rev­enues, too, to the tune of a €20bn sur­plus in 2016. But here’s the rub: Ger­man ex­ports ben­e­fit from a euro lower than a coun­try like Ger­many would nor­mally peg its na­tional cur­rency to (but which fits bet­ter the poorer eu­ro­zone coun­tries) and also from ex­tremely cheap debt­fi­nanc­ing, a con­se­quence of the ECB’s pur­chases of sov­er­eign bonds. To many, it looks like Ger­many has the rules fixed in its favour.

Crit­ics be­lieve Ger­many should spend those sur­pluses in a way that would ben­e­fit deficit coun­tries, for ex­am­ple in mass in­fra­struc­ture projects, the over spill – in for­eign tourism, im­port pur­chases, wages for for­eign work­ers – would spur the economies of eu­ro­zone na­tions still lan­guish­ing from the debt cri­sis. France, the EU’s next largest econ­omy, recorded its big­gest deficit ever in 2016: €48.1bn. Economists, mul­ti­lat­eral or­gan­i­sa­tions and the Trump ad­min­is­tra­tion claim that Ger­many’s ex­port-led growth cre­ates im­bal­ances that put the global econ­omy at risk. There are counter ar­gu­ments to all of these claims.

“It would be help­ful if the Ger­mans were less rigid,” says Mer­ritt, “but you can’t blame them for a 60-year old in­sti­tu­tion that sim­ply wasn’t made for glob­al­i­sa­tion and other con­di­tions of the 21st cen­tury.”

It would be ideal for all the mem­bers states to sit down to­gether and re­think the union, ask­ing “what is Europe?” This is un­likely to hap­pen with so much dis­sen­sion among the 28. It’s more likely that the EU will slog along in its present form, in­cre­men­tally fad­ing un­til what’s left is just a tat­tered sem­blance of the dream be­hind the Treaty of Rome.

The EU has be­come a ram­shackle mon­stros­ity. It’s not in danger of col­laps­ing but rather stag­nat­ing to death

Paul Hockenos is the au­thor of Ber­lin Call­ing: A Story of Anar­chy, Mu­sic, the Wall, and the Birth of the New Ber­lin (The New Press).


Pro­test­ers out­side the Greek par­lia­ment in Athens, wear­ing masks of Ger­man chan­cel­lor An­gela Merkel and fi­nance min­is­ter Wolfgang Schäu­ble, front left, and, cen­tre, a man ral­lies against the European troika.

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