Europe has a new German problem. Unlike in the past, it stems neither from hegemonic ambitions nor from the sort of weakness that might tempt aggression. Instead, it is rooted in Germany’s abdication of any sense of shared responsibility for Europe, despite boasting as robust an economy as it has had since 1945. The result of Germany’s approach – “do as we do, or leave us alone” – is inertia, at a moment when Europe desperately needs momentum.
For a long time, Europe was at the center of German concerns. In 1994, for example, Wolfgang Schäuble – then parliamentary leader of the Christian Democratic Union, and now President of the Bundestag – and his CDU colleague Karl Lamers wrote a paper calling for the EU’s “core” countries, including France, to move swiftly toward closer integration, including political union.
France resisted German pressure because it was extremely suspicious of political federalism. Then-President François Mitterrand did not want to move beyond the Maastricht framework. After the 2010 euro zone crisis, the debate shifted toward structural reforms. France advocated for more economic integration, but Germany conditioned any discussion of the euro zone’s future on French structural reforms. President François Hollande agreed in principle to that trade-off, but lacked the time and political support to implement it.
Today, however, France is finally undertaking Germany’s long-expected domestic reforms – and pressing for change at the EU level. French President Emmanuel Macron wants to create not a federal Europe – nobody is proposing that – but a sovereign EU capable of resisting the pressure of figures like US President Donald Trump, Russia’s Vladimir Putin, China’s Xi Jinping, and Turkey’s Recep Tayyip Erdoğan.
Germany embraces the self-serving fiction that it owes nothing to others for its prosperity.
Unfortunately, Germany is once more resisting French proposals. Though Chancellor Angela Merkel often lavishes Mr. Macron with praise for his courage and policy goals, she seems reluctant to agree to any action to strengthen the EU. German leaders concede that French reforms are good for France, but now argue that euro zone reform is a separate issue. Although disappointing, this stance is not unexpected. Ms. Merkel is politically weakened, and German public opinion remains deeply influenced by the false narrative that the country is Europe’s paymaster.
Wolfgang Schäuble, a former euro federalist, has scaled back his ambitions dramatically. While he still dreams of a European Monetary Fund, it would only resemble a solidarity mechanism. Its main purpose would be to monitor and punish fiscally lax states for the purpose of reducing further the European Commission’s budgetary oversight responsibilities.
The truth is that Germany aspires to live in a minimalist Europe that lacks any political union, but is tied to intergovernmental disciplinary mechanisms designed by its most prosperous countries. In other words, Germany wants to eliminate from the EU all traces of community spirit, and the politics that go with it, and replace them with an austere idyll of rigid rules. And current events in Italy are reinforcing the position of German hardliners. It is probably no coincidence that three days after the new Italian government revealed its economic plan – which, if implemented, will blow up the euro zone – 154 German economists published a manifesto strongly opposing any substantial euro zone reform.
But this stance also reflects the so-called ordoliberal principles that underpin German thought and that shape Germany’s understanding of the euro zone crisis. Along with the Netherlands and the Baltic states, Germany blames that crisis on some member states’ budgetary imprudence and insufficient monitoring of private debt, and thus refuses to examine properly the euro zone’s systemic problems. Eight years later, Europeans still embrace divergent narratives about the crisis. How can we expect them to move toward the future if they strongly disagree on the past?
To acknowledge that the eurozone can function only on a foundation of solidarity and interdependence would be to engage in precisely the kind of thinking that German ordoliberals have always rejected. They see the national economy as the sum of microeconomic decisions, and a supranational economy as the sum of national economies. For them, solidarity is founded on consistent management. This reasoning leads to three lines of argument that preclude basic strategic analysis.
First, Germany embraces the self-serving fiction that it owes nothing to others for its prosperity. Yet we know very well how much Germany’s economy depends on European demand, and how much it benefits from the undervaluation of the “German euro” (whereas the “Italian euro,” for example, suffers from overvaluation). Germany also gains the most from European Central Bank policy. As the German economist Marcel Fratzscher recently tweeted, “The unbearable cynicism of some German politicians and economists: they attack ECB policy, yet Germany’s government is its biggest beneficiary – €294 billion in interest savings since 2007. Compare that to risks assumed in the crisis, and it is an excellent deal for Germany.”
Second, Germany insists that any slowdown should be met with greater discipline and tighter austerity, not countercyclical policies. According to German leaders, no matter how severe the effects of that approach may be, they are simply the price of redemption after committing the sin of accumulating excessive debt.
Finally, Germany is convinced that, in a market economy, the state’s responsibility is to set rules, not to steer the choices of economic actors. In fact, a recent report from the Kiel Institute for the World Economy portrays Germany’s enormous current-account surplus as a reality that policymakers cannot change, and that thus must be accommodated. This ignores the fact, highlighted by a recent study by Guntram B. Wolff, that Germany’s current-account surplus is the result not of aging households’ frenzied desire to save more, but of underinvestment by businesses seeking to resist wage pressure.
This presents France with a serious challenge. One option for overcoming German obstinacy would be to pursue a series of small compromises. But, as some critical German observers, such as the Financial Times’ Wolfgang Münchau, have pointed out, this could lead to minimal and even illusory concessions.
The alternative would be a showdown that brings the debate to the European public. Perhaps this is what Mr. Macron was trying to initiate at Aix-la-Chapelle earlier this month, as he collected from Ms. Merkel the Charlemagne Prize for his pro-European efforts. Such a confrontation need not block progress on other issues, such as border security, investments in industries of the future, taxation of US tech giants, and the defense of multilateralism.
European integration owes much to France’s Robert Schuman and Germany’s Helmut Kohl, both of whom prioritized strategic European interests (through the European Steel and Coal Community and the euro zone, respectively) over the pursuit of immediate national advantage. Today, Mr. Macron is prepared to establish himself as a similar leader, but he needs a reliable German partner willing to challenge ordoliberal rigor in the name of Europe-wide prosperity. Unfortunately, it is not at all clear that he has such a partner in Ms. Merkel.
Copyright: Project Syndicate, 2018.