In Germany’s shadow

Germany is coming to terms with a messy world

THE timing was certainly awkward. Talks between Greece and the euro zone were on a knife-edge. Beset by rumours that Greece was running out of money, Alexis Tsipras, the prime minister, had agreed to propose reforms to unlock bail-out funds. Then, just before Mr Tsipras was to visit Angela Merkel, Germany’s chancellor, a news magazine ran a cover of Mrs Merkel overlaid on an image of occupying Nazi forces at the Parthenon. “The German Übermacht (‘Dominance’)”, read the headline.

Insinuations that Germany’s tough line on debtor countries carries a whiff of the Third Reich have been common throughout the euro crisis, usually in Greece. But this time it was Der Spiegel, a respected German weekly, that made the comparison (depicting European perceptions, it insists). At a press conference with Mrs Merkel, Mr Tsipras condemned the cover (before repeating his call for war reparations). But as Greece again throws the euro zone into turmoil, Germany is facing awkward questions.

During the euro crisis, power shifted from European institutions to capitals, Berlin chief among them. On the urgent question of foreign policy, French weakness and British drift have shrunk Europe’s “big three” to one-and-a-half—if you are feeling generous towards France. In contrast to the apocryphal story of Henry Kissinger wondering what number one calls to speak to Europe, Barack Obama knows exactly whom to consult on Europe’s Russia policy—and she does not sit in Brussels.

German dominance is in part a consequence of others’ retreat. That may be why complaints have been muted. “If the Italians don’t bring pasta and the French don’t bring pâté,” says a diplomat, “you can’t complain about Mrs Merkel’s cabbage soup.” Meanwhile, outside Greece, the worst of the budget-cutting that bred European resentment of Germany is over. The recent solid economic performance of most bailed-out countries has strengthened Germans’ conviction that they were right all along.

That helps explain why Germans continue to crave well-defined rules in Europe. The fiscal process is established, if shaky, and at some point Germany may resume its call for greater co-ordination of economic policies, such as labour-market regulations and tax bases. Such proposals make some European countries squeal but seem eminently sensible to Germany: in the absence of political union, how else is a common currency to work?

But because the world does not always bend to its will, Germany has had to accept political compromises. It was intensely irritated when the European Commission appeared to relax its fiscal rules in January. It has had to swallow the European Central Bank’s decision to begin quantitative easing. And Germany grudgingly accepted the commission’s decision last month to grant France more time to reduce its budget deficit. At last seemingly serious about economic reform, the French government insisted that this was not the time to close off its fiscal space. This political argument found a surprisingly receptive ear in Berlin (which has itself broken EU deficit rules in the past).

Indeed, after several rocky years Franco-German relations are warming. François Hollande was by Mrs Merkel’s side as she negotiated a peace deal with Vladimir Putin in Minsk last month, and listened to Mr Tsipras’s entreaties in Brussels last week. This matters to Germany; although it will act alone if necessary, it still fears the appearance of imposing its will unilaterally. During last month’s jousting matches with Greece, Wolfgang Schäuble, Germany’s combative finance minister, never tired of telling reporters that Germany was not alone in its tough stance.

Mrs Merkel has been well served by her adversaries. On Russia, countries like Cyprus and Italy may grumble about sanctions. But thanks to Mr Putin’s alarming behaviour none has broken ranks when it matters. (This proposition will be tested in June, when all 28 EU members must agree to renew the toughest measures.) The boneheaded negotiating approach of Mr Tsipras’s government has destroyed any chance of a split in the euro zone: Greece has made anti-austerity a toxic brand, at least for now. Similarly, should a re-elected David Cameron pursue his promised renegotiation of Britain’s EU membership, he will find few allies if he seeks to alter the EU’s basic rules.

All this suits Mrs Merkel’s style. She exercises patience, waiting for Greece to see sense on economic reform and Britain to resolve its domestic problems. She took a risk in pursuing the Minsk peace deal with Russia because the situation in eastern Ukraine had become desperate. Yet she has eschewed calls from American senators to send arms, instead comparing the situation to the long wait for the Berlin Wall to come down. This appears to mean she is prepared to see the conflict “frozen”. If Mr Obama was once accused of leading from behind, Mrs Merkel sometimes leads from a direction no one else can understand.

France matters more than Britain

A united Europe, governed by strict fiscal rules, harmonious and at peace with its neighbours: such is the stuff of German dreams. Reality is messier, but Germany is not rigid. During the euro crisis Mrs Merkel always found the political will to keep the currency together, even if her solutions often involved sticking plasters.

But the future will test Germany’s priorities. Keeping Greece in the euro and Britain in the EU are important, but not at any cost. (Some officials think the euro zone will weather a Grexit without too much difficulty.) Nor will Mrs Merkel expend much political capital to save TTIP, a proposed transatlantic trade deal that many Germans distrust. But on existential matters such as saving the euro or keeping France strong enough to remain a meaningful partner, Mrs Merkel will not hesitate to exercise her power, even if it means breaking pledges or undermining rules. That would be a sign of true leadership, and Europe should welcome it.

Source: March 28th 2015

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