After nearly a half century, the “Germany through Europe” bargain, intended to help Germany overcome the political and cultural legacies of World War II, has unraveled. In just a few years, Germans have demanded a rebalancing of the European budget, strict rules governing monetary union, have pushed Eastern European member states into the hands of the International Monetary Fund, and balked at a quick bailout of Greek sovereign debt. In short, the European free ride on the German economy is over.
In many ways, the new Germany is a product of the reunification experience. Far from becoming an emboldened revanchist nuclear state, post-reunification Germany slogged through years of slow growth, record budget deficits, and difficult economic adjustment. As the East failed to bloom, long effective political narratives calling for a European _Einbindungspolitik_ lost their luster. Unification, far from making Germany into a resurgent great power, shackled the nation with mounting debt and decades of regional transfer payments.
Some observers argue that Germany has simply become a normal nation following its self-interest. As the memory of World War II fades and a reunified Germany has become an accepted part of the international landscape, Germany can be just another member of the league of nations. But the crisis reveals that Germany’s situation is more complicated and perhaps more dangerous. The shackles of Europe have been thrown off, but a new driving paradigm has not emerged to shape German policy. In quick succession, beliefs in moral hazard, the inherent prudence of the German people, Chancellory infighting, and regional party politics have shaped the German response. The incoherence of this response has often hurt the position of key interest groups like export oriented firms or big banks typically associated with simple national interest stories.
Germany’s decisions to oppose European stimulus measures and the timing of the Greek bailout plan highlight these shifting motivations. Although the German economy is overwhelmingly dependent on exports to other European countries, German officials strongly opposed pan-European interventions in the wake of the financial crisis. Instead, German politicians raised the specter of moral hazard and run-away inflation by its neighbors. Ordo-liberal beliefs in market stability trumped calls for pan-European solidarity and fears among German exporters. Krass Keynesianism captured the German view of stimulus efforts in countries with large budget deficits. The response to the Greek debt crisis was shaped by similar ordo-liberal concerns. German policy-makers feared the signal that might be sent to other EU debtor countries if Germany became the bank of last resort. But at the same time, bailout efforts became entwined in regional German elections. The Chancellor repeatedly delayed efforts to put together a pan-European response to Greek’s debt crisis, hoping to push off the decision until after elections in North Rhine-Westphalia. This delay cast a further cloud on Greek debt, raising the price of the bailout and putting further pressure on German banks with large holdings of Greek sovereign debt. In a blow to the Chancellor the Greek debt crisis came to head days before the regional election, where she lost in part due to her attempt to politically game the timing of the bailout.
The demise of Germany’s Europe strategy has not created a Bismarckian realpolitik, where predictable political horse trading has replaced Euro-optimism. Instead, it has resulted in a period of extreme policy volatility marked by shifting positions and the absence of a clear logic behind German decision-making. Faced with the mounting uncertainty of the crisis, the natural instinct of a rules-based society like Germany is to turn to more rules. But without trust in other European partners to follow the rules, this approach has quickly hit a dead end. German leaders have turned to a series of ad hoc responses that are strikingly erratic, in contrast to the Teutonic caricature.
The German case calls for a reevaluation of the national interest in foreign policy debates. International relations scholarship has increasingly relied on rational-calculation models to understand state preferences. In many foreign policy situations, however, high levels of uncertainty reign. Policy-makers face circumstances in which it is very difficult to calculate the risk associated with different courses of action. In the face of such uncertainty, underlying beliefs about the nature of the world frequently steer decision-making. The British special relationship, Gaullist independence, or _Einbindungspolitik_ are historically derived beliefs that guide policy when probabilistic calculations become incalculable. The current German case is a stark illustration of how socio-cultural events such as reunification can undermine basic belief structures and leave national decision-makers tossed in the wake of shifting guiding paradigms.
This new volatility has several critical policy implications. In the short-term, we cannot rely on Germany to deal with Europe’s mess. In fact, Germany will likely be part of the problem, calling for new austerity rules that will further squelch growth on the European Continent, which is already faltering. As further financial trauma hits the region, US policy-makers must actively engage the situation and resist the temptation to count on the old engine of Europe. Within Europe, German volatility severely weakens the hand of the European Commission. Long enjoying the de facto support of Germany, the Commission’s ability to maneuver has been curtailed and with it pan-European governance.
In the long-term, in order to face the challenges of the post-crisis environment and the rise of competitors in Asia, we need a strong transatlantic partnership. Given the current state of economic and political affairs in the United Kingdom, Germany should play the major role in that partnership. Ironically, Germany is one of the few advanced industrialized countries that is doing well. The US has the opportunity to help Germany find a new foreign economic agenda based in _prudent sustainable growth._ This agenda would have two key pillars. First, regulate risky Anglo-market excesses of the past decade (e.g. unregulated derivatives) that many Germans blame as a root cause of the crisis. Second, reframe global trade imbalances between deficit and surplus countries as a cornerstone to German and global macro-prudential stability. In short, give the Germans an easy win in the former and couch the latter in terminology that appeals to their concerns about risk and economic instability. By reframing German interests, the US has the opportunity to fill a void in German foreign economic policy and shape the development of the global economy for the next half-century.
Germany is up for grabs and the short-term might see a Sino-German alliance based on stability and shared export strength. Ordo-liberal beliefs guiding much of German monetary policy could easily emerge as a pillar of a Sino-German economic regime. At the same time, we could witness a cozy new relationship between the two export engines of the world economy. But without functioning import markets, the engine will quickly overheat.