Crisis As Opportunity: What is Germany’s Plan for Europe?
Crisis As Opportunity: What is Germany’s Plan for Europe?
For anyone who has followed events in Greece and the eurozone over the past five years, it's no surprise to hear that Germany is not simply Europe’s largest economy, but also the most politically powerful nation on the continent. According to the publication Der Spiegel, Germany has become “the undisputed dominant power in Europe.”
From the outset of Europe’s debt crisis in 2010, it was Germany that largely defined the parameters of the debate, and made the major decisions about how to resolve it. For the Germans, the strategy, or "solution," has long been to use the crisis to their advantage, not to end it outright. As German Finance Minister Wolfgang Schauble explained back in 2011, “crises are also opportunities” that can allow Europe’s powerful nations and institutions to “get things done that we could not do without the crisis.”
But what exactly are they trying to do? That answer lies in a broader understanding of the crisis itself. This is not merely a crisis of Greece, or a crisis of debt, but a crisis in the institutional structure – or architecture – of the eurozone itself. There exists a monetary union of 19 nations that use the euro as a single currency, managed by the European Central Bank (ECB), but there exists no fiscal counterpart.
Monetary policy – with its focus on inflation, interest rates and exchange rates – has been taken out of the control of elected leaders and placed in the hands of unelected technocrats at the ECB’s headquarters in Frankfurt. Yet fiscal policy – the spending policies and priorities of national governments – has no parallel union or institutions. Thus, a structural conflict persists: national governments cannot implement or influence monetary policy to support their fiscal policies, while central bankers cannot act with the confidence that national governments will implement the "correct" fiscal policies that support their monetary policies. So the eurozone reflects a conflict between democracy on the one hand, and technocracy on the other.
For Germany, the course of action was clear: what Europe needed was further integration under the supranational rule of unelected technocrats. As Finance Minister Schauble wrote in 2010, “from Germany’s perspective, European integration, monetary union and the euro are the only choice.” But this means that a deeper union would have to be sought in the fiscal and political arenas. The financial and debt crises, explained Schauble, were effective in terms of providing the needed pressure upon individual member nations of the eurozone, forcing them to accept the necessity of a European “fiscal union.”
In January of 2012, Chancellor Merkel laid out her plan for Europe, explaining: “My vision is political union... In the course of a long process, we will transfer more powers to the [European] Commission, which will then work as a European government,” and ultimately give Europe’s unelected institutions “more control rights and give them more teeth.” For his part, Jean-Claude Juncker – the then-Prime Minister and former Finance Minister of Luxembourg, as well as the President of the Eurogroup of finance ministers (and current President of the European Commission) explained, “We need a European economic government in the sense of strengthened coordination of economic policy within the euro zone.”
In his final months as president of the European Central Bank in 2011, Jean-Claude Trichet suggested that in the “union of tomorrow... would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?” Indeed, such an idea has been endorsed by Wolfgang Schauble, who explained in an interview: “In an optimal scenario, there would be a European finance minister, who would have a veto against national budgets and would have to approve levels of new borrowing... Those who want a strong Europe,” he said, will “have to be willing to surrender decisions to Brussels.”
In June of 2012, a report was prepared by Europe’s top technocrats outlining plans for the establishment of a fiscal union, outlined by Herman Van Rompuy (President of the European Council), José Manuel Barroso (President of the European Commission), Jean-Claude Juncker (President of the Eurogroup), and Mario Draghi (President of the ECB). Their plan envisioned a fiscal union in which Brussels would be given “more powers to serve like a finance ministry” for the eurozone as a whole.
However, the process of deepening a fiscal and political union for Europe isn't seen as the end objective, but rather a means to an end. The end objective is much larger, and has to do with securing and strengthening Europe’s place as a central economic and political power in an increasingly globalized world. The catchword for this objective is “competitiveness.”
As Angela Merkel said in a 2012 interview, “If Europe today accounts for just over 7 per cent of the world’s population, produces around 25 per cent of global GDP and has to finance 50 per cent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life.” Merkel explained that the European model for social capitalism was no longer viable, because “other models have long since emerged: China, India, Japan, Brazil, and they will be joined by other countries that are working hard and proving to be innovative.”
The idea strikes at the heart of Germany's and Europe’s place in the global economy. At the end of World War II, the United States had 5% of the world's population and owned roughly 50% of global wealth. In the post-War period, the U.S. rebuilt its wartime enemies, Germany and Japan, into powerful economic locomotives designed to be the engines of growth for their regions (Europe and East Asia) and to act as counterweights to the spread of Communism and the influence of the Soviet Union and China. The German and Japanese economies grew rapidly, so much so that they quickly became America’s chief economic competitors. But the system broke down in the late 1960s and early 1970s, culminating in the end of the Bretton Woods monetary order in 1971.
Thus began a great period of monetary and financial instability, as well as transformation. This was the birth of the globalized era, marked by increased economic cooperation between the industrial powers of the world that were attempting to maintain their influence in the midst of profound geopolitical and economic changes.
The number of new nations that formed and began to establish their own economies rapidly accelerated in the post-War period. By UN measure, in 1945 there were 51 members of the United Nations. By 1971 the number had risen to 132 member nations, and today there are 193. Similarly, when the International Monetary Fund (IMF) was established in the post-War era, it began with a membership of 29 nations. Its membership surged by almost 100 additional nations by the end of 1971, and stands at 188 nations today.
In 1975, the rich industrial nations formed what would later be known as the Group of Seven (G-7), consisting of the United States, West Germany, Japan, France, the United Kingdom, Italy and Canada. At the start of the first Summit meeting in 1975 (from which Canada was excluded until the next meeting, in 1976), U.S. President Gerald Ford toldother leaders that “in this meeting we have the opportunity to help shape the future of the world economy.”
At that summit, German Chancellor Helmut Schmidt laid out his belief that many industries in the West would ultimately have to de-industrialize and fade away in the face of growing competition from cheaper markets elsewhere. He referred specifically to the textiles industry in Germany and other parts of the continent noting that “given the high level of wages in Europe, I cannot help but believe that in the long run textile industries here will have to vanish.” The problem, he said, was that “wages in East Asia are very low compared with ours,” and thus while Italy's and France’s high-fashion industries would likely survive, the German textile industry “will vanish in ten or twelve years... it will happen.”
In the four decades since the first summit meeting of the G-7, the world has indeed changed in the face of globalization, particularly in regards to the rapid growth of the emerging market economies. The competition for a strong place in the global economy (and thus, for global political power) has become more dynamic and complex. Germany and Europe must compete not simply with the U.S. and Japan but with China, India, Brazil, South Africa, Turkey and others. While still a member of the G-7, Germany is also a member of the G20, one of the top shareholders in the IMF, and is the most influential nation in all of Europe’s major institutions. This gives the country a special role in shaping the future course of Europe.
As Japanese Prime Minister Takeo Miki explained at the 1976 summit meeting of the Group of Seven: “The GNPs [gross national products] of the countries represented here represent 60% of world GNP, and these countries account for one-half of all world trade.” As of 2015, however, the G-7 accounted for roughly 46% of global GDP and only 35% of global trade. In 2013, according to data from the IMF, the combined GDP of the developing and emerging market economies surpassed that of the industrialized economies for the first time.
In 2013, The Economist summed up Germany's plan for Europe: “If the region is to prosper in competition with emerging countries, it cannot continue to be so generous.” The German Chancellor, Angela Merkel, “wants to introduce more such [fiscal] rules to force Europe’s economies to become more competitive,” it stated. But these policies and priorities were to be defined by Europe’s strongest economy, so "in short, the rest of Europe needs to become more like Germany.”
It is important to question, however, what exactly is a “competitive” economy in the globalized world? For Germany and Europe, it means that wages must go down, social services and worker protections must be increasingly dismantled, and markets must be increasingly deregulated and liberalized. It is, in effect, a race to the bottom as emerging economies like China and India engage in a race to the top. And for Germany, this also means that Europe must be increasingly united and centralized, for only as an integrated economy can Europe compete with the massive economic potential of nations like China.
While this scenario may be the pragmatic reality of creating competitive economies in the globalized era, it also happens to be immensely threatening to the standard of living for Europeans – and emblematic of the way the market economy is held in much higher esteem, in our present society, than any notion of liberal democracy. Germany’s plan for Europe may make economic sense, to a degree. But it also marks a further transition into transnational, technocratic tyranny at the expense of democracy – where increased poverty, unemployment, social instability and economically depressive policies are the cost of Europe achieving a more "sustainable" and "competitive" position.
In other words: If you want to know Germany’s plan for Europe, start by looking at Greece.
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