MAGAZINE COVER STORY

Should Germany Step Up to Lead the West?

  • Why it matters

    Why it matters

    Germany finds its economic model under threat from the backlash against trade and the fraying of the global order.

  • Facts

    Facts

    • Germany is more dependent on trade and global stability than any other major economy, exporting 46 percent of its GDP.
    • After decades of reticence, Germany is slowly easing into a leadership role.
    • President Donald Trump has singled out Germany for the size of its trade surplus and low military spending.
  • Audio

    Audio

  • Pdf
Druck
All eyes are on you. Illustration by Miriam Migliazzi and Mart Klein for Handelsblatt Global Magazine.

At this momentous turn of history, even more eyes than usual are focused on Berlin. Just three days after Donald Trump’s victory in the November election, a shell-shocked New York Times declared that Angela Merkel was now “the liberal West’s last defender.” Germany, we’re told, has taken the baton from America as “the leader of the Free World.” The journal Foreign Policy even foresaw the dawn of “Pax Germanica.” Britain’s Brexit vote, the election of a nationalist to the White House and the return of war to the European Continent are three geopolitical earthquakes — among many lesser tremors — that have shaken the foundations of the Western order. The world looks at Germany, with its powerful economy, deep pockets and stable politics, and sees a rock in the global storm.

This is not just the view of pundits and politicians. For several years now, Germany has been heading global polls as the world’s most admired country. Not only do refugees seek a haven here, but the country has also become a magnet for the world’s best and brightest, more of whom arrive each year to power the economy and fuel the country’s start-ups. German citizens are said to carry the world’s most valuable passport, offering visa-free entry into more countries (177) than any other nationality. Many left-leaning Americans, especially, now see Germany as a beacon of enlightenment on social, humanitarian and environmental issues. For a country whose awful 20th-century history not so long ago instilled deep distrust among its neighbors (and among many Germans themselves), it’s been an astonishing redemption.

Never, therefore, have expectations of Germany been higher. They come at a time when the order on which German stability and prosperity has been built — free and open global trade, a European Union that unites stable and democratic governments, a Continental peace ensured by NATO and ultimately backed by the United States — is fraying before our eyes. Naturally, Germany’s leaders and political class are themselves struggling to adjust to this new reality. When a new government is installed for the next four years following the September 24 election, Germany faces momentous decisions that will determine the future of the country, Europe and perhaps the world.

Germany needs a vigorous national debate on its vision for Europe and the wider region, and on the role the country wants to play in the world.

Will Germany step up? The country has some tough choices to make: How will Berlin ensure the free flow of trade on which its export economy depends? Will Germans assume a greater responsibility for their own and Europe’s security? Will Germany strike a deal with its European partners — above all, France — to achieve these goals? And will it push the Continent toward deeper economic reforms, including a revamping of the troubled common currency? Perhaps most of all, Germany needs a vigorous national debate on its vision for Europe and the wider region, and on the role the country wants to play in the world.

Germans have long shied away from the leadership question. Even to pose it is perhaps a bit unfair. For one, Germany lacks a hegemon’s economic and military might. Second, in a crowded Europe of jealous nation states, the country might be first among equals, but is easily outvoted in an EU of 28 members; keeping Europe aligned can be like herding cats. And to be fair, Berlin already has, in recent years, taken on a more active role in Europe and the world — engineering a bailout deal for the eurozone, sending soldiers to Mali and Afghanistan, and brokering an agreement with Turkey to stem the flow of migrants. But to its critics, Germany has taken the lead only reluctantly, at the last minute, and without a broader vision of its strategic aims and role in the world.

Calls for Berlin to lead aren’t new. Reunified at the end of the Cold War, a suddenly bigger Germany became the Continent’s dominant power by population, by economic strength, and by its geographical position at the center of an increasingly integrated Europe. Back then, some foreigners feared the birth of a “Fourth Reich,” while others hoped for a benevolent hegemon whose power, money and positive example would help keep Europe peaceful and prosperous. Then-U.S. President George H.W. Bush called on Germany to be America’s “partner in leadership.” With the Communist empire collapsing and a new order in the making, those were heady words.

01 The World’s Largest Economies-01 Germany economy GDP India Brazil 20 largest EU US United States Japan China France United Kingdom Britain

Germans were flattered, but not much more. Their politics were still wedded to an earlier culture of reticence honed to great effect during the country’s 45-year division. They’d learned to focus on tactics and incremental steps. Still traumatized by the Nazi era, the nation strove for moral clarity and left the messy business of geopolitics — not to mention war — to others. The model was wildly successful. Speaking softly and carrying no stick, a reemerging West Germany focused on reconciliation with its neighbors and on the global trade that made it rich, while waiting for an opportunity to reunify the country. Germans were only half kidding when they said they wanted to be a larger version of Switzerland.

Its main strategic goal reached in 1990, the nation turned inward, focusing on reconstructing its dilapidated East and healing the wounds of division. When the outside world knocked, Berlin sent a check, as it did in support of its allies during the first Gulf War. When Europe burned during the Balkan Wars, Berlin called for dialogue and understanding. Only slowly did Germany ease into a new, more activist role — sending the Bundeswehr to Kosovo and Afghanistan, for example. More recently, Merkel threw Germany’s financial firepower behind a last-minute eurozone rescue deal. She has kept Europe united in its tough response to Russia’s redrawing of borders and aggression against Ukraine at considerable cost to German companies doing business in Russia.

Now, Trump is accelerating change. The president of the country that used to be Germany’s most important patron has singled it out for a thrashing like no other ally. “We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change,” Trump tweeted in May.

main two 113158264 source Christian Charisius picture alliance DPA – Chancellor Angela Merkel soldier gun marine ship Korvette Braunschweig in Kiel January 2016
Germany and arms: still an uncomfortable combination. Source: Christian Charisius / picture alliance / DPA

What Trump’s bluster makes clear is that Germany’s stability masks a great vulnerability. The country is dependent on globalization and free trade for its prosperity like no other major power, yet that order is threatened from all sides. All told, Germany earns a massive 46 percent of its GDP through exports, far more than any other large economy. (China and Japan, two other great beneficiaries of globalization, earn only 20 percent and 18 percent of their respective GDPs from selling goods abroad.) The current wave of nationalism and discontent with globalization, of which Brexit and Trump are only the two most obvious manifestations, strikes at the heart of the German economic model.

Germany’s problem is that the global order that sustains trade and globalization was largely built and maintained by others, most of all by the United States. That’s why, at least for now, America remains indispensable. Another reason the U.S. remains crucial is that it buys 9 percent of Germany’s exports, thereby securing 1.6 million jobs. For the next four years, Germany will have to manage prickly relations with its erstwhile patron — even if Trump’s name is now so toxic among Germans that even Russia’s Vladimir Putin and China’s Xi Jinping score higher on public trust.

Berlin also knows that Europe, for better or worse, is still dependent on the U.S. to uphold global security and deter possible military threats. “We need the military power of the United States,” Merkel told the Munich Security Conference in February. Long before Trump started shaming NATO allies into spending more on defense, German leaders from Merkel on down had already agreed that Europe must invest more in its own security. To that end, Germany began hiking defense spending in 2016 for the first time since the Cold War. The Bundeswehr now operates joint units with France, Poland and a host of other allies, the possible core of a European fighting force. This summer, Merkel and new French President Emmanuel Macron announced the development of a Franco-German fighter jet. Most significantly, German soldiers now help guard NATO’s eastern border in Lithuania, the first time Germany has stepped up with its military to deter Russia. Yet few of the Bundeswehr’s 16 current mandates around the globe include combat. As long as a pacifist Germany only lets others do the fighting, its allies will worry that Germany will not step up in a security crisis.

30 German Defense Spending Low and Lower-01 Nato army military

Germany has also been scrambling to shore up the global system of free trade. Barely a year ago, massive protests across Germany helped scuttle the Transatlantic Trade and Investment Partnership (TTIP), which would have joined the EU and U.S. to create the world’s largest economic zone. Since the Brexit vote and the election of Trump, Germans suddenly seem to have grasped their vulnerability. Faster than expected, and with support from Berlin, the EU has inked new trade deals with Canada and Japan. Merkel talks of giving TTIP another try. At the G-20 summit in July, she began recruiting rising powers, such as India and Brazil, to play a greater role in global economic governance.

Germany will not ensure its prosperity if it doesn’t also help Europe get its house in order. While the euro zone has returned to growth, a banking and debt crisis festers. Italy is perpetually on the brink of crisis, and the economic fallout of Brexit is still unclear. The EU cannot agree on how to control its outer borders as the flow of migrants rises again. All the while, the EU’s political unity is threatened by the bloc’s illiberal democracies and populist movements.

Germany cannot fix these problems alone. Hopes are high in Berlin for a deal with Macron, a Germanophile who won power with a pro-EU agenda. In exchange for reforms to revive the statist French economy, Germany would support a common euro-zone finance minister and budget. That would not resolve the underlying contradictions of the common currency, but it could help align its two biggest economies until the next crisis forces a more serious reform.

01 Germany an Economic Powerhouse-01 EU US United States Japan China France United Kingdom Britain trade surplus deficit gdp growth unemployment debt budget

Germany remains vulnerable at home as well, and not just because some of its automakers have been cheating on emissions tests. During Merkel’s 12-year tenure, Germany has stopped and partially reversed many of the labor-market and welfare reforms that unleashed the country’s current boom. Soon, the country’s aging workforce will slow down growth and place even greater strains on the public budgets.

Germany’s economy is doing well now, but its extreme dependence on exports could come back to hurt Germans, too. While Germans rightly reject any notion that they should become less competitive, there are other ways to strive for a more balanced economy. They might include a fresh round of reforms to unleash domestic growth, including more spending power for citizens (Germans pay some of the world’s highest taxes), higher government investment (in education, infrastructure or defense), and deregulation to spur domestic investment. Because these reforms would boost German demand for foreign goods, they would help stabilize the European economy, as well.

Germany’s old culture of reticence, of sitting out problems almost until it’s too late, has long reached the limits of its usefulness. America’s retreat from global leadership has left a void that threatens the basis for Germany and Europe’s stability and prosperity. Many in Europe’s capitals still hope they can sit out the Trump administration, holding the fort until a more traditional American president takes over, and an order of sorts is restored. That may be wishful thinking, and 2020 is still a long time away. Germany has been pushed, shoved and prodded to show a more active style of leadership to help fill the void. The next four years will show whether that time has finally come.

 

This article first appeared in the Fall 2017 issue of Handelsblatt Global Magazine. Stefan Theil is the magazine’s executive editor. To contact the author: s.theil@vhb.de

We hope you enjoyed this free article.

Subscribe today and get full access to market-moving news in Europe's leading economy.