Uwe Albrecht has what he calls a wonderful problem. In his office in Leipzig’s fortress-like town hall, the deputy mayor says the city’s population has grown so much in the past decade that he is having to build more kindergartens and schools.
“Ten years ago we were talking about closing schools,” he said.
Now Leipzig is one of the success stories of Germany’s reunification. New roads, rail links and a redeveloped airport have sucked in investment and international companies. Yet none of it would have happened with a colossal 20-year bailout that has already cost the west of the country 1.3 trillion euros (US$1.6 trillion).
“Without the transfers from the West, it would not have been possible,” Albrecht said.
With Europe slumped in an existential crisis, looking both desperately and fearfully to Germany to supply the leadership and the money to match its clout as the EU’s central power and biggest economy, it is often forgotten that Berlin is a past master at financial bailouts. Which is why it is also weary of them.
The enormous costs the country has shouldered since 1989 have pushed many to the limits of their largesse, with people fed up with how much they have had to pay and for how long.
“People feel these transfers will never stop, that the money will just keep flowing,” said Matthias Kullas of the Center for European Policy.
In a domestic debate that mirrors the resentments across the EU, richer German states now complain about constantly having to help out poorer states via the federal subsidies system.
Just as tens of thousands of Germans tried and failed last week to persuade the country’s constitutional court to rule against the eurozone’s bailout fund, the rich southern state of Bavaria is taking similar action to try to freeze payments to poorer areas. Some southerners are calling for Bavarian independence from Germany, arguing it would be better off. In addition to the subsidies, German taxpayers stump up a “solidarity surcharge” of 5.5 percent of income tax to fund the hefty costs of unification in an arrangement due to last until 2019.
“East Germany might well need another trillion [euros],” Katinka Barysch at the Center for European Reform said.
Despite the unification fatigue, the project remains feasible for several reasons — patriotism, empathy with the less fortunate easterners, and because the process is subject to the same rules, laws, political system and culture and can be easily policed and monitored.
None of this can be said about Europe. The German merger model is not a template that can be applied on a European scale. When the euro was being created 25 years ago, then-German chancellor Helmut Kohl used to argue that German and European unification were the two sides of the same coin. The euro crisis has punctured that notion.
In the debate now raging in Germany over Europe, it has become acceptable to assert that Kohl may have been a great chancellor, but he got one thing wrong — the euro.
“It’s healthy,” said Ulrike Guerot of the European Council on Foreign Relations in Berlin. “This is the first time that Germany is having a proper polarized discussion on Europe. Europe still resonates in Germany. But now the debate is different. Some say yes, some want it smaller, some say forget it and turn their backs on it.”
This polarization is generating tremendous uncertainty and ambivalence as Berlin agonizes over which way to turn, poised between giving Europe the cold shoulder or spearheading a big new integrationist push towards a much more centralized eurozone federation. For the moment it is a case of muddling through, but few believe that this can continue for long. Whatever the outcome, Europe’s future will be decided not entirely, but mostly in Berlin.
Writing last week in the Frankfurter Allgemeine Zeitung, the historian Andreas Wirsching likened Berlin’s current dilemmas over Europe to those of Otto von Bismarck in the 19th century, suggesting the tug of war over the euro reflected a similar political dynamic that in the past had resulted in wars.
Germany’s position in Europe, he wrote, was “semi-hegemonic.”
“That means a problematic in-between position which is not dominant enough to impose its will on its European neighbors, but is strong enough to be seen as a threat, generating opposition, stirring alliances, and always running the risk of leading to isolation,” Wirsching said.
That might sum up German Chancellor Angela Merkel’s position today after she was hijacked at an EU summit in June by the leaders of France, Italy and Spain over euro policy. Indeed, Merkel has acknowledged the “semi-hegemon” status, telling parliament in June that Germany may now be big and strong, but it is also over-stretched and not big or strong enough to meet the expectations of rescuing the euro.
Tensions, suspicions and misunderstandings between Germany and its eurozone partners abound. Germans feel aggrieved at being penalized for success, being asked to shell out for other people’s failures. The beneficiaries feel bullied by Berlin dictating their budget and fiscal policies. They complain when Germany leads — and when it does not.
“It’s always been viewed as common sense in Germany to be pro-European,” said David McAllister, the prime minister of the state of Lower Saxony. “But now for the first time there’s a noticeable anti-European feeling.”
For example, German competitiveness and the success of the “made in Germany” brand that has made the country a global exports champion is frequently criticized by those on the other side of the euro debate, feeding German defensiveness and a sense of grievance.
Hans Kundnani, editorial director at the European Council on Foreign Relations, argues that Germans are blinded by an “export nationalism” or have become too dependent on their exports which generate nearly half of all German GDP.
“Germany needs to become less competitive and contract its export sector in relation to GDP,” Kundnani said.
Such advice is met with gasps of incredulity.
“We export like madmen to China, Latin America, Asia, India. We’re an export machine whose success has nothing to do with Europe. We also did that when we had the deutschmark,” said Wolfgang Nowak, a former aide to Merkel’s predecessor, Gerhard Schroder.
Gunnar Beck, an expert on European law and a skeptic on Germany’s so-called European vocation, said: “Germany has not benefited from the euro nearly as much as many say. Asking Germany to focus less on exports — the backbone of the economy — would be like asking the British economy to focus less on the financial sector. There would be an outcry.”
The euro crisis has put paid to the fiction that Germany and France are equals at the top of the EU. However, the German establishment has not yet resolved the issue of direction of travel. Take two voices from Germany’s political elite, both of them social democratic. The signals could not be more different.
Nowak, the former Schroder aide, now directs Deutsche Bank’s Alfred Herrhausen Society.
He told the Guardian: “Germans have taken it on the chin for far too long and spent far too much money on Europe. And why did we do it? Because we swooned over the idea of the United States of Europe, hoping that people would forget that we’re Germans ... We felt liberated at the idea of being able to be Europeans. And others let us dream the dream as long as we always paid the bill.”
In contrast, Jorg Asmussen is playing a key role in trying to save the euro as the German on the executive of the European Central Bank and a former deputy finance minister. For him the answer is the United States of Europe derided by Nowak.
Asmussen said: “Every generation has to define anew how it deals with Europe and the European question. I wouldn’t take it for granted that we can keep what we have achieved. Completing monetary union means four things — a banking union, a fiscal union, an economic union, a democratically legitimized political union. They belong together and depend on one another. And this integration will mean more freedom, more security, more jobs, more prosperity for the European citizen.”
This is the agenda Merkel also says she is pursuing, one that will tax all her qualities of leadership if she is to perform the double trick of coaxing her own people into acceptance as well as cajoling at least 16 EU countries into buying the federal Europe blueprint.
The road to that Europe will be long and pitted with holes. Perhaps the most fundamental problem with the vision espoused by Merkel or her veteran finance minister and European architect, Wolfgang Schaeuble, is that it is based not on enthusiasm or optimism, but has been born of crisis and fear. There is no upbeat dynamic, rather a dread that Europe will unravel into rival, resentful fiefdoms if it is not centralized.
Besides, the French or the British are comfortable with the mantle of leadership. The Germans less so.
“Germans are very, very reluctantly dealing with the idea that they are the default leaders of Europe, that we’re the ones that everyone’s looking to for salvation,” said Constanze Stelzenmuller of the German Marshall Fund in Berlin.
Polish Foreign Minister Radoslaw Sikorski famously highlighted the dilemma in a speech last year in Berlin when he declared that he feared Germany’s power less than its inaction.
The acquired habit of relative passivity is proving hard to break.
“I think it’s very good that Germany is hesitant to have a leading role,” said Margot Kassmann, former head of Germany’s Protestant church. “The history of the last century has proven that was usually the wrong path to go down.”
In the midst of Europe’s woes, it is difficult in the towns and cities of Germany to sense any trouble. The crisis is just not happening in a country with the second-lowest unemployment in Europe. This mismatch makes it difficult to mobilize public opinion behind expensive action to fix problems that they do not feel affected by.
“I get the feeling that Germans are lounging on an island and not taking on board what the rest of the world is thinking,” Elmar Brok, Member of European Parliament for the Christian Democrats, said recently.
Despite complaints in Germany that they are paying the most to bail out the Greeks, Irish and the rest, Brok points out that the country is paying the same as everyone else in per capita terms. There just happen to be more Germans. Then there is the culture that makes Germans the biggest savers and most reluctant spenders, encouraging national stereotypes about the thrifty and the spendthrift, the scroungers and the stingy. For example, comparatively few Germans own credit cards while most are reluctant to take a mortgage.
It is customary to ascribe these habits to a history of several currency reforms as well as the wheelbarrow inflation of the Weimar Republic in the 1920s.
“Hyperinflation and currency reform are firmly anchored as major traumas in the collective German psyche,” McAllister said. “Inflation is something that frightens us and is one of the reasons why Germany included a debt brake in its constitution.”
It has also insisted that others in the eurozone follow suit.
“Germans have piggy bank genes, they save like mad,” Nowak said. “The fear of hyperinflation is what makes the idea of printing money horrific to Germans.”
It also reinforces the allergy to bailouts and the growing disenchantment with the euro. Almost uniquely in Europe, Germany has no anti-EU party.
However, there is a growing band of euroskeptics who would like to see the country leave the euro, while the mainstream appears determined to control it.
McAllister points to the power of the press and some reports that Germans are ingesting about the rest of the eurozone.
“A German reads that the average Greek retires at 58, 59, the average French person at 62. He or she feels that we’ve gone through all these structural reforms, we’ve had little or no wage rises, we can expect to retire at 67, we’ve worked hard to make Germany more competitive, yet the one who makes the effort is punished,” he said. “Germans are distancing themselves from Europe and that’s something we’ve never seen before.”
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