Germany: The Necessary But Not Sufficient Nation?

by Sheri Berman on January 20, 2011

During the global economic crisis, Germany has received more attention than probably most scholars and observers would have predicted. Early on, much attention was paid to the country’s purported decision to go the “austerity” rather than the “Keynesian” route; more recently scrutiny has been focused on its purportedly obstructionist role in the European Union’s meltdown. While both of these claims have some truth on the surface, neither really captures fully what is going on.


A number of analysts (including Paul Krugman 1) have already discussed the relative balance between Keynesianism and austerity in contemporary German economic policy, so there is no need to go into this in much depth. What is worth noting, however, is that Germans have never been fond of Keynesianism, even during its heyday in Europe’s postwar period. For a variety of historical reasons (not all of them valid) Germans have had an allergy to Keynesianism, avoiding it even during its miraculous economic recovery after the war and while building up an extremely generous welfare state. That Germany therefore once again proved unwilling to embrace Keynesianism -at least openly – should therefore be no surprise to those who know something about Germany’s 20th century economic history.

But equating a lack of enthusiasm for Keynesianism with austerity or worse 2 seems silly, since whatever the Germans have said, they continue to spend way more than the U.S. on their welfare state, have carefully managed unemployment by paying firms to keep workers rather than firing them, and have no intention whatsoever of letting their deeply troubled banks fail. It is also worth noting that behind all the rhetoric of Germany’s “austerity” generating a “miraculous” economic recovery, a much more troubling reality lurks (again, see Krugman). Most strikingly, although Germany’s exports have been doing quite well of late, Germans themselves have not benefitted concomitantly from this: their incomes and purchasing power remain surprisingly stagnant and the relative health of the employment market is (as noted above) still dependent on government efforts and potentially developing some potentially serious flaws.

Far more interesting and surprising then Germany’s stand against Keynesianism has been how the financial crisis has revealed a larger problem with contemporary Germany—namely its role in the European Union. As many, especially, George Soros have noted,3 as the Euro zone’s most powerful nation and economy, Germany has played an outsized role in determining political and economic developments over the past years—and here’s where things get interesting.

Much talk has been heard of late of the basic flaw in the EU—the disjuncture between its political and economic development. The early architects of the European project hoped (and expected) that politics would catch up with economics: that the continent’s political institutions would become as integrated as its economies, but alas this has not happened. The dangers of this disjuncture became clear during the current crisis when the common currency created differential problems for European countries and the EU more generally was unable to come up with a coherent response to a barrage of problems. But the current crisis has brought up a second flaw in the EU’s design—its heavy dependence on a Germany that was bound to disappear.

EU institutions and functioning were, to a large degree, premised on a Germany willing to subsume its national interests to those of its neighbors’ and pay a disproportionate share of the bill for constructing the new Europe. What we have seen in this crisis is that this may be as fundamental a flaw in the European projects as is the disjuncture between its political and economic development. During the current crisis Germany has made clear that it a) will not go along with policies that seem good for the EU (in the short term) but directly go against what its views as its own national interests (like bailouts of profligate countries like Greece) without at least raising a fuss; similar and related, b) it will no longer foot the bill for new programs just because it is asked (see same). What is now painfully clear is how much of European integration’s progress over the postwar period was based on just these assumptions being true—i.e. that Germany would willingly adopt (or at least accept) the preferences of its neighbors (mainly France) and pay the bill for policies that would facilitate the growth and extension of the European project. That Germany is no longer willing to do these things should be neither surprisingly nor lead to predictions of some sort of German reversion to Evil Empire status. What this all represents is, of course, nothing more than the normalization of Germany, helped along by a changing of the guard at the leadership level and a financial crisis that has cruelly highlighted how different the economies and attitudes of Germans and many other Europeans are.

Just as anyone who knew anything about German political and economic history during the twentieth century should not have been surprised by Germany’s initial discomfort with the (fleeting) enthusiasm for Keynesianism exhibited by many countries and policy-makers in the West, anyone with any knowledge of international relations or recent Germany history should not be surprised by Germany’s current discomfort with or ambivalence about shouldering a disproportionate burden in powering the European engine. The signs have been there for a long time, but it has taken the financial crisis to highlight not only this shift in Germany’s stance but how important it is.

Helmut Kohl was the last German leader to equate Germany’s interests fully with Europe’s. German unification temporarily solidified this equation as Kohl and other German elites recognized that assuaging many Europeans’ fears of a united Germany required once again placing Germany’s commitment to a European future front and center. But the structural underpinnings of this position were shifting and so it was only a matter of time before superstructure caught up. Already under Gerhard Schröder (Kohl’s successor), this change was clear. Germany was under a leadership for whom the Second World War was no longer the only factor defining German foreign and domestic policy; Schröder’s government therefore had no problem criticizing Brussels, cozying up to the Russians, or breaking with the Americans in ways that would surely have made their predecessors cringe. And since Schröder’s time, this trend has only continued. Germany has become less backward looking, less defined by its past. The problems topping the German political agenda are the problems of other European countries: unemployment, competition with China, immigration. It is true, as Jürgen Habermas has said that Germany is developing a more “inward looking national policy.” This does not mean that its commitment to Europe is or will evaporate or that leaders no longer recognize how valuable the European Union is to Germany. It just means that alongside these concerns, other concerns now take on a higher profile among German elites (and the public) than they did a generation ago. We can see how these different imperatives have pushed Germany to act in a somewhat erratic and unpredictable fashion over the past years. Rather than continually and routinely sprouting a generic commitment to the European project, Germans now qualify that with criticism of their neighbors, demands for their own interests to be taken more forthrightly into account, and the occasional unilateral utterance or policy move that others have reacted to with what can only be called shock. All of these trends are to be expected, and should have been expected.

In relatively good times the full implications of this shift in German position and attitudes were obscured. Now of course, Europe is at a critical juncture and successfully maneuvering through it will require leadership and powerful course corrections. In the past, the Germans (along with the French) would have stepped in, coming up with a compromise that satisfied the key players and managed to keep Europe moving forward, if at a plodding pace. But the Germans aren’t so willing to play this role anymore. They won’t unflinchingly accept the extra burdens, feel scornful towards many of their neighbors who have not made the same “sacrifices” they have, and the chemistry between the German and French leaders is weak, to say the least. Just as the crisis has highlighted the gap between economic and political integration so too has the crisis highlighted how dependent Europe was on its most powerful country acting in an historically and comparatively peculiar way.

So, what does this all mean – for Germany and the EU’s future? Well, fortune telling is always a risky business, but what seems clear is that some long-standing shibboleths have finally reached the end of their natural lives. Most importantly that the flaws built into the European project will take care of themselves – that over time the disjuncture between politics and economics will be reconciled and that Germany can be countered on to willingly shoulder a disproportionate share of the political and economic cost of integration for the foreseeable future. Once we recognize that neither of these things is likely to be true, the European project looks both harder and more exciting. Harder, because the real problems or flaws in the project can no longer be avoided; more exciting, because dealing with them can no longer be avoided. Germany remains the necessary nation for Europe but Europeans must realize that it is no longer sufficient.

1Paul Krugman, “What About Germany?”} textit{New York Times}, August 24, 2010.

2Noam Schreiber, for example, has described German economic policy and preferences as “gratingly reminiscent of Republican talking points.”

3George Soros, “The Crisis and the Euro,” New York Review of Books, August 19, 2010.

{ 11 comments }

1

Guido Nius 01.20.11 at 7:43 pm

Remarkably good post!

It would be over-all not the worst thing if Europe would just take over Germany’s current state of organization at the European level in return for Europe to be less dominated by who happens to be the current German prime minister.

PS: I don’t know whether Merkel was right but Krugman was certainly not without flaw

2

IM 01.20.11 at 9:06 pm

Is is Scheiber. But no worry: Both are good german names.

3

Utisz 01.21.11 at 9:52 am

This post, and the one which follows it, out of all the contributions, chime most with my view from here in Germany.

4

Tom M 01.21.11 at 5:07 pm

Is there a set of circumstances, any, whereby Germany would subordinate her internal economics to the EU? Or is the path so clear at this point that Germany would rather go back to the DM and forget the experiment?

5

Oliver 01.21.11 at 6:41 pm

Is there a set of circumstances, any, whereby Germany would subordinate her internal economics to the EU?

If such circumstances existed, which I am unsure about, they’d be unacceptable for the other members. Germany would, in fact any nation facing such a question, would have to demand at least one man – one vote, or perhaps even a voting sharing proportional to its economic contribution.

6

Fred Simpson 01.21.11 at 7:01 pm

You commented that Germany was never enthusiastic about Keynesianism. On the contrary Germany was the first economy to adopt Keynesianism in the 1930s. It was an economic policy that fitted nicely with the strong statist politics of the time.

However, by 1938 it was clear that the Keynesian policies were running up massive debts. And this resulted in war.

Be careful, because in the Keynesian analysis “activity” is usually more important than “wealth”, and there is no such thing as waste as long as everybody is busy.

Keynes himself had a very different objective in his policy framework, than any of the opportunists in the political system who adopted his policies for their own ends.

7

Detlef 01.21.11 at 7:31 pm

Tom M,

Is there a set of circumstances, any, whereby Germany would subordinate her internal economics to the EU?

Do you mean budget rights, tax rights and so on?

If so then highly unlikely. It would end up pretty fast before the German Constitutional Court. Which already made in clear that it is skeptical for now. That is one reason why Merkel is so cautious.

If I remember correctly they said essentially in one court decision (Maastricht decision):
Germany is a democracy. Its constitution says that all power evolves from the people.
The EU right now isn´t a democracy. There is no one man – one vote rule. There are no clear European political parties (government parties, opposition parties) through which voters can “clearly” influence decision making. There are EU institutions that are only partly or not at all answerable to the (not fully representative) EU parliament.
(Mind you that´s just my own summary going from memory here. I might misrepresent some reasons here.)

Therefore essential and basic parliamentary rights like for example taxation or budgets can´t be transferred to a body that isn´t fully democratic.

You would practically have to change the EU into a real “United States of Europe” to counter these objections. Which would be
a) pretty time consuming
Just imagine the negotiations and conferences needed. Years!
And that would assume that
b) other countries would agree to it.
Which seems highly unlikely too.

8

bob 01.21.11 at 9:56 pm

Fred Simpson: Germany’s 1938 debts “resulted in war”?? What an innocent-sounding use of the passive voice! War just happened, eh? But it would be more accurate to say that “Hitler started the war” — for Lebensraum, and for the glory of the Master Race.

9

Norwegian Guy 01.22.11 at 3:38 pm

Detlef,

You’re probably right, but I wonder about this argument: “There is no one man – one vote rule.” If you’re thinking about the fact that smaller EU states have more votes and MEPs per capita than larger EU states, isn’t this the case within many countries as well? It’s probably the norm in federal states, including Germany, where the largest states are heavily underrepresented in the Bundesrat.

And even if some smaller EU states, like Greece and Ireland, could be persuaded to give up some of their votes to larger countries in exchange for economic rescue packages, the richer small states have no reason to do so.

10

Oliver 01.22.11 at 10:24 pm

In Germany the budget is passed by the lower house alone, which is one man – one vote. To be considered a democracy in the eyes of the constitutional court, you must have institutions, so that no law can be passed without the consent of an assembly based on one man – one vote. You can have another chamber with veto power, but the democratic chamber must never be overruled in the sense of passing laws against its will.

11

dan 01.24.11 at 11:37 am

“have no intention whatsoever of letting their deeply troubled banks fail.”

Banks seem exempt from “austerity” schemes wherever you go.

Comments on this entry are closed.