Will German Leadership Save Europe Or Destroy It?

Posted on March 28, 2015


By its actions – and contradicting its words – Germany seems to believe that the only future for Europe is a German Europe. Now that Germany has a leadership position in Europe, will this attitude unite or destroy the European project?

This article was first published in German in Die Achse der Guten

The Greek crisis poses an existential threat to Europe. Germany has a strongly dominant position in the difficult negotiations that will unfold over the next four months. Will Germany be able to use its position positively to hold the Euro and the European Union together? Or will Germany destructively lead the gradual unravelling of all that has been achieved over the last half century?

The Importance of Greece

Led by Germany, some European countries may have deluded themselves that they have the upper hand. A Grexit can be managed and the losses would be just for Greece. How short are our memories. We seem to have forgotten that it was only a few short years ago that the U.S. Government made the judgment that it could tolerate the failure of a single bank – Lehman Brothers. That misjudgment unleashed one of the biggest financial collapses we have ever seen. Greece is not a single bank. The idea that a Greek collapse can be contained and we can all go on living happily ever after is so outrageous that I am sure those taking that position publicly do not, for a moment, believe it themselves.

And that is just the economics. A Greece that is first humiliated, then crushed under endless austerity, and finally rejected by the European Union will quite reasonably turn elsewhere for support. In the current turbulent and dangerous geo-political situation, such an outcome would not serve Europe’s best interest.

From Rhetoric To Reality

The German government’s aggressive and uncompromising rhetoric has, and continues to be, hugely destructive – some would say irresponsible. The oft repeated narrative is that the Greeks have nobody to blame but themselves for their current predicament – lazy disorganized and corrupt Southerners who cannot be trusted and who are trying to live off German taxpayers’ money. Besides betraying an unwelcome degree of arrogance, such a narrative is, at best, incomplete; at worst a lie.

The introduction of the Euro gave Germany and other Northern European countries a massive competitive devaluation of their currency. Had the Deutschmark been retained, German goods today would be at least twice as expensive on the international market. Northern European countries have benefited from this devaluation while Southern European countries have had to suffer a non-competitive increase in the value of their currencies. Germany in particular, and, to a lesser extent, the Netherlands, have turned this advantage into the development of a mercantilist economy with high exports and low domestic demand. As Jean-Baptiste Colbert and others clearly explained in the seventeenth century, mercantilism weakens other nations and, inevitably, leads to conflict and war. It was for this reason that, following the writings of Adam Smith and others, countries started to abandon the mercantilist approach in the late eighteenth century. The plight of Greece and other Southern European nations today is not simply the result of their own economic and political models (though they do, of course, play a big part). They are also the result of the introduction of the Euro and the economic behaviours in Northern Europe.

The other part of the narrative is that the Greeks and others must learn to obey the rules. This conveniently forgets that Greece is not the only country that resists European rules. France and Germany were the first countries to ignore the rules laid out in the European Stability Pact when doing so suited their own political and economic needs. France today remains outside the rules. The reality is that, if the EU is to survive, European rules can never be any more than guidelines that must be flexible enough to accommodate the wide variety of economic and cultural differences in a block of 28 nations.

Austerity is a Bankrupt Policy

Mrs Merkel clings on to the prescription of imposed prolonged austerity for Greece and other European countries. Yet everyone from the Governor of the Bank of England, to Joschka Fischer, to Nobel Prize winning economists, to President Obama, to the European Central Bank, to very many others all now accept that some austerity is necessary but that the excessive and prolonged austerity imposed on Greece and other countries is a policy that is socially catastrophic and morally, politically and economically bankrupt. High debt levels require cuts in spending while those very same spending cuts during a prolonged period of recession cause an immoral level of social destruction, kill demand and further increase the debt. It’s a death spiral from which it is impossible to emerge other than through making heroic and utterly unrealistic assumptions about future growth.

As a recent article in Foreign Affairs puts it, it is delusional to expect “citizens to vote indefinitely for their own impoverishment in order to save the asset values of creditors.” By refusing to compromise and continuing to insist on prolonged austerity, Germany is showing itself to be either economically illiterate or utterly politically unrealistic and morally heartless in its insistence on endless social destruction for millions of European citizens.

The Troika Aimed At The Wrong Targets

What are the fundamental problems in Greece? They are primarily issues of embedded corruption, clientelist politics and large scale tax evasion by oligarchs. Yet the Trioka preferred to focus its so-called reform programme on issues like how many cleaners the ministry of finance employed. The Troika’s prescriptions destroyed the lives of millions of Greeks but did nothing to tackle the deep issues caused by the wealthy and the powerful. The Troika got into bed with the devil in the form of a Greek government deeply entrenched in the culture of corruption. Now, it seems, they would rather still be in bed with that same devil than help a new government that does not (yet?) have ties with the ruling classes and seems determined to tackle the deep seated issues that have eaten away at the soul of the Greek state.

The policies imposed on Greece by the Troika were nothing short of incompetent – as has now been more or less admitted by the IMF. They were driven by the narrow focus of financial technocrats working with spreadsheets to make the numbers add up while seemingly ignoring the broader moral, social and political issues of their policies.

Can Germany Be Trusted?

The upcoming negotiations on the Greek situation will lead European citizens everywhere to ponder several questions. Sixty years after the end of the Second World War, has Germany now become a country that can be trusted with a leadership position in Europe? Has Germany developed the understanding and empathy necessary for leadership? Does Germany have the imagination and capability to lead Europe in a way that works for a continent of nations with diverse cultures, politics and world views or does it still believe that the German way is the only way and everyone must submit to its will? Will Germany lead Europe to greater harmony and prosperity or will it sow the seeds of destruction?

As the German people contemplate these questions for themselves, maybe they should reflect on the words of some of their own great leaders. Helmut Schmidt warned that whenever Germany has attempted to impose its will it has always ended in disaster for Germany itself.

It may not be Greece that poses the biggest threat to Europe but rather how Europe itself, and Germany in particular, choose to respond to the Greek crisis. Let us hope that Mrs Merkel and others can find the imagination and moral courage to abandon stubborn confrontation and find new, flexible and collaborative approaches. Let us hope that they will not condemn us to Schiller’s lament that “a great moment has found a little people.”