SPECIAL REPORT GERMANY June 15th 2013 Europe’s reluctant hegemon 20130615_SRGermany.indd 1 03/06/2013 17:43 SPECIAL REPORT GERMANY Europe’s reluctant hegemon Germany, now the dominant country in Europe, needs to rethink the way it sees itself and the world, says Zanny Minton Beddoes IT IS NOT often that a single country dominates the nal of Europe’s Champions League, but on May 25th more than 360m people around the world watched Bayern Munich score in the 89th minute to beat Borussia Dortmund by two goals to one at London’s Wembley Stadium. The sym• bolism was powerful. For the rst time in its 58•year history, the nal of Europe’s most important football contest was a wholly German a air. From the football pitch to politics to the economy, Germany has be• come Europe’s most powerful country. Described by this news• paper as the sick man of Europe in 1999, Germany now appears to have the continent’s strongest as well as its biggest economy. It ac• counts for a fth of the European Union’s output and a quarter of its exports. From Volkswagen to SAP, Germany’s big companies CONTENTS are world•renowned. Many smaller German rms are global 3 Election brieng champions in niche markets such Colours of the rainbow as tunnel•boring machines and 4 Germany and Europe industrial cleaners. The Merkel plan Germany’s jobless rate, at 5.4% (using standardised OECD 6 The economy statistics), is less than half Eu• Dissecting the miracle rope’s average. Youth unemploy• 9 Energy ment, a scourge throughout Tilting at windmills much of the rest of the continent, is at a 20•year low in Germany. 11 Labour The country’s budget is balanced, Erasmus generation government debt is falling and 13 German leadership long•term bond yields are the Overcoming the demons lowest in Europe. It is the largest creditor country in the euro zone, and as chief paymaster it has the A CKNOWLEDGMENTS biggest clout in determining the single currency’s future. This special report beneted from The weakness of other heavyweights has added to Germany’s heft. help and insights from many people, Britain, outside the euro and distracted by a domestic debate about its EU not all of whom are mentioned in membership, has lost inuence. The Franco•German tandem at the core the text. The author would like to of post•war European integration has become lopsided. Relations be• acknowledge in particular Katinka Barysch, Michael Burda, Daniel tween Berlin and Paris are unusually poor, with some French politicians Cohn•Bendit, Ulrike Guérot, Manfred decrying the selsh intransigence in the euro crisis of Germany’s chan• Güllner, Daniel Hamilton, Klaus• cellor, Angela Merkel. The economic gap between Germany and France Peter Hansen, Claudia Kemfert, is wider than it has ever been. France’s economy is stagnant, statist and Markus Kerber, Claus König, Hans• Helmut König, Norma Köser•Voitz, uncompetitive and urgently needs reform. Alexander Graf Lambsdor , Kurt As a result, power within Europe has shifted sharply towards Ber• Lauk, Johannes Ludewig, Christo• lin. Mrs Merkel is widely seen as the continent’s most important politi• pher Mallaby, Frank Mattern, Boris cian. In Beijing or Washington, DC, the question: Where is Europe go• Palmer, Volker Perthes, Jean Pisani•Ferry, Adam Posen, Alex ing? has become synonymous with: What do the Germans want? Privitera, Gary Smith, Gabor Bureaucrats in Brussels talk ruefully about Berlin becoming the cap• A list of sources is at Steingart, Constanze Stelzenmüller, ital of Europe. When the German position changes on an issue, the ka• Economist.com/specialreports Stephen Szabo, Jan Techau, Murat leidoscope shifts as other countries line up behind them, says one o• Topal, Beatrice Weder Di Mauro, EU An audio interview with Shahin Vallée, Dieter Wemmer, cial. That’s unprecedented in the history of the . the author is at Guntram Wol and Robert Zoellick. German predominance is not all•encompassing. In foreign a airs Economist.com/audiovideo/ and military matters, for instance, France and Britain still play a much 1 specialreports The Economist June 15th 2013 1 SPECIAL REPORT GERMANY DENMARK Germany Britain nant power. In the language of political l t i c scientists, it lacks the capacity to act as Eu• B a S e a France United States rope’s hegemona leading country that N o r t h Unemployment rate takes responsibility for the stability of an S e a SCHLESWIG- % HOLSTEIN international system as a whole, as Amer• 150 km MECKLENBURG- 12 ica does for the world. William Paterson Hamburg WEST POMERANIA 10 of Aston University in Birmingham has BREMEN P S called Germany a reluctant hegemon. O D HAMBURG BERLIN L 8 Within Germany this debate is al• N A A LOWER SAXONY e N b most wholly absent. Germans are deeply L l E 6 Berlin D R ambivalent about their growing role in E BRANDENBURG H 4 Europe, and generally uncomfortable T NORTH RHINE- SAXONY-ANHALT E R h N WESTPHALIA talking about leadership. The mere vo• in 2 e Dortmund cabulary is fraught with historical echoes. Düsseldorf 0 The German world for leader is Führer, GERMANY SAXONY 2003 05 07 09 11 12* Cologne the title adopted by Adolf Hitler. Mention HESSE THURINGIA the word hegemon, and German politi• BELG. Current-account balance cians inch. Mrs Merkel recently de• RHINELAND- Frankfurt Former boundary % of GDP PALATINATE between East and scribed the concept as totally foreign to C Z E C H 10 LUX. West Germany R EPUBLIC me. Strategic thinking is strikingly ab• N sent anywhere in government. Joschka Fi• SAARLAND e BAVARIA c k a 5 scher, a former foreign minister, laments Karlsruhe r be Danu + that: Germans have never had a serious Stuttgart Tübingen conversation about the destiny of a re• FRANCE 0 BADEN- united Germany in Europe. WÜRTTEMBERG – Munich This is unlikely to change soon, so it 5 is not easy to assess where a German• AU S T R I A SWITZERLAND dominated Europe may be heading. This 10 special report will try to provide some an• Manufacturing industry as % of GDP, 2012 <15 15-19 20-24 >25 2003 05 07 09 11 12* swers by looking at the forces that will af• fect German priorities. GDP Budget balance The most obvious short•term inu• % change on previous year % of GDP ence is the general election due on Sep• 6 5 tember 22nd. Mrs Merkel is widely ex• + 4 pected to win a third term as chancellor. 0 She is personally popular and her party, 2 – + the Christian Democratic Union (CDU), 0 5 together with its Bavarian wing, the – Christian Social Union (CSU), is far ahead 2 10 in the polls (see box, next page). But it is 4 not strong enough to govern alone, and support for its current coalition partner, 6 15 the Free Democratic Party (FDP), has 200304 05 06 07 0809 1011 12* 2003 05 07 09 11 12* slumped. Mrs Merkel might end up go• Sources: European Commission; Eurostat; German national statistics; IMF *Estimate verning in a grand coalition with the main opposition party, the Social Demo• cratic Party (SPD). And given Germany’s 2 bigger role. But across a large swathe of European policy, Ger• complicated system of proportional representation, it is not in• many has become much more than a rst among equals. And conceivable that Mrs Merkel will be defeated by a coalition of judging by France’s weakness, Britain’s ambivalence and south• the SPD and the Green party. ern Europe’s debt problems, for the next few years Europe’s fu• Election politics has plainly inuenced Germany’s recent ture will continue to be disproportionately Made in Germany. reactions to the euro crisis. The country’s tough stance on bank• Outside Germany this dominance has become the subject rupt Cyprus, for instance, reected the need to neutralise objec• of lively debate. The German questionabout the role of a tions by opposition parties to bailing out a place that had grown country too big for Europe and too small for the world, as Henry fat on laundered Russian money. But whatever its outcome, the Kissinger famously put itis back on the agenda. Many fret that election is unlikely to prompt a sudden shift in Germany’s policy Germany is becoming too bossy. Newspaper cartoons in south• towards the euro or the EU: German attitudes to Europe and to ern Europe show Mrs Merkel with a Hitler moustache. Southern leadership run deeper than party politics. European politicians say Germany is selshly wielding its clout to impose austerity policies that will wreck their part of Europe Where the past is ever•present in order to protect German taxpayers. The most important place to look for explanations is his• Others are worried that Germany is being too passive. Ra• tory. The shadows of the past weigh on Germany more heavily, dek Sikorski, Poland’s foreign minister, fears German inaction and in more complicated ways, than on any other big country. more than German power. On this view, Germany does not Those shadows can be divided into three broad groups. want, and cannot exercise, the leadership required of a predomi• First, Germany has no historical experience of successful 1 2 The Economist June 15th 2013 SPECIAL REPORT GERMANY 2 international leadership. For centuries the German•speaking mans are loth to see their government take the lead. Germany’s people lived in a collection of small, semi•independent states. preferred self•image is as a bigger version of Switzerland: eco• The country’s two attempts at projecting power since its unica• nomically successful but politically modest.