March 7 (Bloomberg) -- A familiar specter is haunting Europe: How to live with a powerful Germany that seems to act according to its own interests, and whose policies are driven by domestic politics.
Headlines across Europe are stoking old fantasies and fears. Yet, this time, the appropriate answer to that question is surprising, even shocking. The best way to deal with a resurgent Germany is for its partners and neighbors to imitate the institutional features, including monetary and fiscal stability, that have made that country so successful and powerful.
That will require overcoming a long history of troubled relations. The so-called German problem dominated European and world affairs from 1871 -- when the German Empire was proclaimed by Otto von Bismarck in the Hall of Mirrors in Versailles -- until 1945, when the Nazi regime was defeated.
From 1945 to 1990, the “problem” looked as if it had been solved because Germany was divided and powerless. The Federal Republic was an economic giant, yet its politicians ensured that it was a political dwarf.
The question arose again with reunification, in 1990. Chancellor Helmut Kohl tried to produce a new solution by adopting a formulation of the great writer Thomas Mann and promising a European Germany rather than a German Europe.
Alliance With France
The solution for Germany, for both the first postwar West German chancellor, Konrad Adenauer, and for Kohl, who viewed himself as Adenauer’s political grandson, relied primarily on a strong Franco-German relationship. Adenauer’s greatest political bridge-building occurred with Charles de Gaulle, who envisioned a Europe that was driven by German economic strength, guided by French political will and excluded the U.K. Later, some less Anglophobic French politicians liked to portray a Europe where the U.K. and France would provide security, with Germany still in a subservient position; Germany and France, meanwhile, would provide economic dynamism, compensating for a feeble and deindustrialized U.K.
It is clear today that the Franco-German relationship alone is no longer capable of managing the complex and convoluted political tangle of Europe or of sorting out its economic and financial mess. That is because the power disparity between the two nations has become too great, as a result of relative French weakness.
When Chancellor Angela Merkel recently appeared to insert herself in the French elections by openly backing President Nicolas Sarkozy’s re-election bid, that support rapidly proved counterproductive for her French friend. Sarkozy was lampooned as a puppet of Merkel, the rear end of a strange “Merkozy” monster.
Sarkozy’s Socialist Party opponent, Francois Hollande, could point out that the incumbent president’s re-election would be the latest recent instance of a European leader imposed by German diktat, as some critics claimed was the case for Prime Minister Lucas Papademos of Greece, Prime Minister Mario Monti of Italy, and Prime Minister Mariano Rajoy in Spain. These politicians are accused of carrying out Germany’s wishes by subjecting their nations to economic orthodoxy and budgetary austerity, at the expense of domestic interests.
Merkel has become a new hate figure in Europe, not just in Greek newspapers that present her as a Nazi reimposing a brutal German occupation, but also in the U.K.’s financial press, which portrays her as imposing mindless and costly austerity on Europe as a way to satisfy the greed of Germany’s powerful exporting industries.
Unity of Purpose
This hostility shouldn’t come as a surprise. Europe’s relative stability in the post-1945 era can be explained not only by the strength of a Franco-German partnership but also by the unifying power of what Europeans disliked.
Europeans have always depended on foreign hate figures. For most of the Cold War, that threat was the Soviet Union. In the 2000s, they sneered at President George W. Bush. These days, without much of a Russian threat, and an amiable U.S. president, a new target has emerged: the woman leading the European Union’s largest and most powerful state.
Germany’s political language has radically evolved, too, as the country has shown an increasing willingness to assert itself. On May 19, 2010, Merkel told the German Bundestag: “The rules must not be oriented toward the weak, but toward the strong. That is a hard message. But it is an economic necessity. That must have consequences for the European Union.”
The new tone seems to echo Bismarck’s language on the eve of German unification, when he spoke about decisions being made not by speeches and majority decisions but by blood and iron.
Yet in today’s Europe, Germany and Merkel aren’t completely alone.
The German negotiating stance in the never-ending debt negotiations -- resistance to the possibility of perpetual fiscal transfers to southern Europe -- is shared, not by France, but by many of Germany’s smaller neighbors or near neighbors, such as the Netherlands, Finland and Slovakia, which are part of the common currency, as well as by Poland and Sweden, which aren’t in the euro area. Last week, 25 of the 27 EU nations adopted a German-backed fiscal compact that sets enforceable caps on deficits and gives greater oversight over national budgets to European authorities. The agreement may be submitted to the German parliament for ratification this week.
When Poland’s foreign minister recently called for a stronger Germany that would assert real leadership in Europe, the speech provided a striking illustration of the shift of historic relationships. In 1990, Poland was still thinking of institutional mechanisms in the EU and in NATO that might offer some protection against German power. Now it needs Germany to protect it against financial strain and turbulence.
There are some 19th century parallels, but they aren’t found in Germany’s political plans. The most distinguished economic commentator of that time was the British journalist Walter Bagehot, who wrote in 1869 that there should be “one Teutonic money and one Latin money; the latter mostly confined to the West of Europe, and the former circulating through the world. Such a monetary state would be an immense improvement on the present.”
He added: “Looking to the commercial activity of the Teutonic races, and the comparative torpor of the Latin races, no doubt the Teutonic money would be most frequently preferred.”
The real attraction of the modern German model shouldn’t be interpreted in terms of the occasional flourishes of Bismarckian rhetoric in parliamentary speeches. The appeal of Germany lies instead in its particular model for generating wealth and prosperity in a globalized world economy: the development of dynamic export industries, based on competitive advantage, in a world of technological progress. That is the model that is now attracting Germany’s neighbors but also reformers in southern Europe.
Those German or North and Central European initiatives are ferociously resisted by a plethora of vested interests, in Mediterranean Europe and in France. The German model involves fiscal restraint as an essential condition for private-sector initiative. That template isn’t a vehicle of German power politics in a 19th-century sense, but rather a building stone for economic success.
(Harold James, a professor of history and international affairs at Princeton University, is the author, most recently, of “The Creation and Destruction of Value: The Globalization Cycle.” The opinions expressed are his own.)
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