Sunday, July 19, 2015

Germany's self interest

For decades Germany saw its role as the driving force and beneficiary of Europe's unity which combines its sense of guilt of its past history and self interest.  The rest of the Continent came to rely on it as the country that could be trusted to keep the European project moving forward.

But with the handling of Greece's bailout package agreed at the Euro summit on 12 July, Germany has lost this trust. By taking an aggressive and punishing attitude toward Greece, the German leadership may have undercut its moral authority. By advancing the idea that Greece should leave the euro, Germany exhibited its national interest more openly than in the past and made it clear that there are  limits to its willingness to put European unity first.

Jurgen Habermas, a pro-European German philospher argues that Ms Merkel and her political coalition " have gambled away in one night all the potential capital that a better Germany had accumulated in half a century"while previous governments had displayed 'greater political sensitivity and a post-national mentality".  For much of the German post-war history, patriotism was considered shameful and the national interest coincided with Europe. 

But with the reunification of the country and the creation of the largest member country of the European Union, Germany became more open to use its power to defend its national interest. the big change began when Germany pushed for a more rules-based system to manage the euro area. 

In the past, Germany was willing to provide the money or arrange deals to hold Europe together and go forward. History shows that European unification has progressed only through crises from the ashes of WWII to economic stagnation of the 80s. But the enlarged Europe resembles to a 'conglomerate' of States defending their national interests. Coming to Greece, Ms Merkel fought to keep Europe united with little conviction as few people expected a deal on Greece with such high economic costs.

There is much to argue, as many economists do, about the need for austerity policies in times of recession. Even the ECB and the IMF called for debt relief to make the Greek debt a bit more sustainable; this did not work out due to the inflexible position of the Germans supported by a large coalition of countries, including the Netherlands, Finland and several Eastern countries. 

But the brutality of the negotiations over Greece has damaged the reputation of Germany inside the European Union. Moreover, it has reinforced an anti-German sentiment among European citizens which also reflects a growing rejection of the European Union with Germany being at the heart of it..

This will represent a turning point in Germany's role in Europe. The latter will appear as a different bloc than the one the founding fathers had in mind or even the creators of the single currency (namely Jacques Delors). The fight over Greece's bailout will, as Hans Kundnani (author of the book " the paradox of German power") put it , lead to a "more German Europe and a more coercive EU".

Beyond the apparent unity on the deal, the Greek crisis has highlighted a split within the Eurozone. Germany and its allies believe that that economic orthodoxy  with a strong Central bank are needed while another group led by France and Italy argue that budgetary and economic policy has to be driven by politics, not just rules. 

Since the reunification, Germany always wanted the euro area to resemble itself  and the euro to the D-Mark while solidarity depending on everyone playing by the rules. May be we need to change the rules (" no bail out", no " default" )which have largely been inadequate to  address the debt crisis, not only in Greece. 

P.S: Ms Merkel and Mr Schauble are federalists in their own way. Of course, they reject the idea of a European federation of  States. But in their view federalism means not an open ended commitment to rescuing other States (as it happened in the US with California's default), but a willingness to abide by agreed rules. On the other hand, Mr Hollande has relaunched the idea of a government for the euro zone with its own budget and with democratic control by the European Parliament which will be pushed forward by a 'vanguard' of 7-8 countries.  

1 comment:

  1. W.Munchau, the FT editorialist (20 July) argues that Grexit is inevitable and will occur in the midst of an insurrection.