It is an election year in Germany. Europe’s “indispensable nation” is going to the polls on September 22, and it is only natural that the department for creative policy ideas in Berlin is closed at least until then.
This gives observers time to reflect on questions that have been mystifying partners, allies, analysts, and pundits in Europe for the last three years: What does Germany actually want? What is its agenda for dealing with the euro crisis? And what is its idea for the Europe that will emerge from the crisis?
At a superficial level, the answer seems clear. At some point between mid-2010 and mid-2011, Chancellor Angela Merkel decided to pursue a course of “conditional solidarity.” In return for vast credit guarantees to ensure the survival of banks, governments, and whole economies, Berlin asked for structural reforms and fiscal discipline, now better known as austerity. The idea is to balance budgets and make Europe’s ailing economies more competitive, so that the euro survives and integration can resume as before.
The only problem is that it is hard to believe this is Berlin’s real agenda. As it stands, not even Berlin’s elites think that Germany will receive its desired payback. On closer inspection, German policy in the crisis remains a huge mystery.
Here’s why. The premise is that, in the crisis, everybody wants German money. The European Commission, France, Italy, armies of economists, some veteran intellectuals, and almost all newspaper columnists (except the FT’s priceless Gideon Rachman) have asked Germany to open its coffers, boost its domestic consumption, engage in Keynesian stimulus politics, and be more generous toward the afflicted countries in Europe’s southern periphery.
Berlin, of course, is not amused, and tries as vigorously as it can to fend off these demands. Advisers in the chancellery openly complain about a “war of attrition” against Germany, waged by a coalition of the needy and greedy.
In reality, the top layer of German leaders has long accepted that Germany, in the end, will have to pay. They know that large amounts of German taxpayers’ money will be needed to support Europe’s ailing economy.
This is where the mystery comes in. Instead of accepting the inevitable and ensuring that, in return for German money, at least its key demands are met, the German government announces that it will support the common currency “under any circumstances.” For Berlin’s partners, the message is clear: no matter how hard-nosed Berlin pretends to be, in the end Angela Merkel will cave in to keep the euro from falling apart.
After deliberately undermining its own negotiating position, it is no surprise that Germany gets very little back for its multibillion-euro pledges of solidarity. The fiscal and banking unions exist on paper only, and doubts prevail over whether they will ever have much impact.
Reforms in Greece, Italy, and Spain have all but stalled, with these countries’ economies going from bad to worse, silently eroding the credibility of the democratic system in the process. And finally, the various stability mechanisms set up to manage the crisis have effectively created a European “transfer union,” Berlin’s official horror scenario.
Now, don’t get me wrong. A transfer union might be a good thing, depending on what vision of Europe you have. Keynesian politics might be the right solution. Reforms in the continent’s periphery will take time. Banking and fiscal union—as good as they sound in theory—raise questions about democratic legitimacy and accountability, so maybe we are better off without them. The issue is not so much whether any of this is good or bad. The question is why Germany has willfully squandered its huge chance to influence the future shape of the EU.
The side effects of this approach are horrendous. First of all, it forces the German government to be dishonest with its own people. On a daily basis, Merkel and her ministers assure voters that Germany will be tough on the recipient countries, when in fact it has promised to keep on paying, no matter how lackluster reform efforts are.
To add insult to injury, populists in Greece, Spain, and Italy happily use this rhetoric of resolve to portray the chancellor as a heartless Nazi debt dominatrix. For those in Germany who have always distrusted Europe, the government’s inconsistency confirms that a dishonest caste of dreamy-eyed prointegrationists in Berlin is selling out Germany’s interests to wasteful spongers and despotic eurocrats.
So why does Germany not use its leverage to pursue a positive agenda? Why is it not threatening to withhold support payments in order to enforce reform? Why does it stick to its strategy of unconditional support when the results after three years are so negligible?
It is hard to guess. Maybe it’s because some in Berlin really believe that recipient countries will reform, just because there is an agreement that says they have to. Maybe it’s because the foreign-policy elite still finds it historically inappropriate to push German interests. Or maybe they believe that by silently creating a transfer union, they will finally bring about the European federal state they have been dreaming about since they first entered law school.
My guess is that the reason is much less sinister: Berlin simply does not know what kind of Europe it wants. Unlike the UK, France, the European Commission, and the transfer-hungry states in the periphery, Berlin has no strategic approach to EU politics. In the post-unification, post-enlargement, post-Helmut Kohl, post-postwar Germany, nobody has an idea of the purpose of Europe anymore.
This disorientation makes Berlin an easy pushover in the battle for spoils in Europe. But this means that Germany risks getting the Europe it dreads most: one built on transfers, with few incentives to modernize, its sclerotic economies caught in a slow downward spiral. Ultimately, even peace, freedom, wealth, and democracy could be endangered.
It has often been said, but it is now truer than ever: Germany needs to get its act together on Europe. It really is Europe’s indispensable nation, and not just because of its money. Europe needs Germany to be bold, determined, and forward-looking in its approach to the future of the EU. The chance for that comes on September 23.