27 June 2011

CER Essay, Simon Tilford: Germany's brief moment in the sun

Four years ago, Germany was widely seen as the sick man of Europe. Now the talk is of Germany’s unrivalled strength, even of its hegemonic status in Europe. Nowhere is this more obvious than in the case of the eurozone, whose survival – so the narrative goes – hangs on German benevolence.

How, in the space of just four years, has Germany gone from being the sick man of Europe to experiencing a second Wirtschaftswunder, from being plagued by self-doubt to being full of self-confidence? The answer is that Germany was never quite the sick man of Europe that it appeared to be back then, and it is not as strong as is seems now.

Germany is portrayed as the ‘motor’ or ‘powerhouse’ of the European economy, alone in Europe in having retained a manufacturing base worthy of its name and hence able to profit from the rise of emerging economies. Much of this new narrative is misleading – and ultimately damaging. Germany has its strengths, of course, but its economic might is exaggerated. Indeed, there are good reasons for thinking that its economic and political ascendancy will be short-lived.

At present, there is no missing the resurgence of German self-belief. Many German politicians, business leaders and economists like to compare Germany’s economic performance and its alleged solidity – based on manufacturing and high savings – favourably with other European economies and the US. The subtext is that everyone must learn from the German example and put their houses in order. Countries must live ‘within their means’ and focus on sound forms of economic activity. German virtue and probity is contrasted with the irresponsibility and fecklessness of others. There is little sense that Germany, through its own domestic imbalances, faces serious economic challenges or is an obstacle to the resolution of problems elsewhere in the eurozone.

True, there are dissenting German voices, but they are struggling to be heard. Indeed, there is a sense within Germany that the country is outgrowing Europe. Booming exports to emerging markets (Germany accounts for almost half of total EU exports to China) are making some Germans question whether they still need the EU, especially when all it seems to do is present Germany with problems. Influential media, many business leaders and even some politicians from the ruling CDU/CSU and FDP parties imply that were it not for Europe and its sclerotic and debt-ridden economies Germany would be sitting pretty. Not only is there increasing frustration with the failures of other European countries, but also with the EU institutions. German politicians still pay lip-service to European integration – and portray themselves as good Europeans – but they have become increasingly hostile to the Commission and wherever possible prefer inter-governmental solutions to problems. Foreign critics of Germany’s new assertiveness are generally given short shrift. Germany, one often hears, is simply doing what France or the UK do – putting its own interests first.

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