With apologies to Jane Austen, it’s (also) a truth universally acknowledged that Germany is Europe’s undisputed leader. Its powerful economy, large population, mostly stable politics and mostly responsible politicians assure that Berlin looms large over the European Union landscape.
Nothing happens in the EU without Germany’s blessing. For years that was a good thing. It isn’t any longer.
Whisper it softly but Germany’s EU partners are getting a little fed up with Berlin’s writ. This is especially the case when it comes to agreement on how best to bring economic growth back into the flagging 28 EU economies.
Germany’s focus on austerity is coming under harsh criticism — some of it veiled, some of it open — for jeopardising Europe’s economic recovery.
Disaffection with Germany is spreading beyond economics. EU insiders complain in private at Berlin’s growing influence in key EU institutions, its ability to grab some very senior EU jobs for its nationals or close friends and its newly-found assertiveness in areas such as foreign and security policy.
Europeans liked a Germany that always said “yes”, kept trying to atone for its role in the two World Wars and opened its wallet whenever others in the EU needed help.
Linked up with former adversary France, Germany was the “locomotive” that kept the EU moving up and forward, through economic and monetary, the negotiation and implementation of different constitutional treaties and kept the flame burning on issues like further European integration.
It’s different now. Germany is doing all that and more. And its EU partners like it less and less.
What went wrong? In fact, the economy. Ever since the Eurozone crisis reared its ugly head, Germany as the bloc’s healthiest economy, has been calling the shots, insisting that governments across the bloc must tighten their belts, cut spending and talk and walk austerity.
The tide is changing, however. Across Europe, national leaders, policymakers and economists are starting to challenge Germany’s insistence on budget austerity as a precondition to healthy growth.
France is in, what some observers refer to as, an “open revolt” against German Chancellor Angela Merkel’s continued demands for deficit reduction in the face of slowing growth.
Italy has warned against too rigidly following Germany’s preferred approach. The president of the European Central Bank, Mario Draghi and IMF head Christine Lagarde are also pushing for Germany to loosen up.
Critics of austerity say that more government spending would increase demand for goods and services in Europe and help avert a dangerous fall into deflation, a downward spiral in wages and prices that can cripple an economy for years.
Proponents of austerity, which include the Dutch, Austrians and Scandinavians and the three Baltic states, say that governments that fail to get their budget deficits and accumulated debt under control risk losing the ability to borrow at affordable rates in the bond markets and sowing the seeds of financial instability.
The debate is unusually “philosophical”, not just economic, say observers. Warning against an escalation of mutual recriminations, the respected former Italian prime minister Mario Monti said the divergences of policy revealed divergences of “national cultures”.
Matteo Renzi, the current Italian Premier, has said more bluntly that Berlin has no right to lecture its partners, urging Berlin — and the European Commission which now vets national budgets — to show more understanding for countries with no growth and high unemployment.
French Prime Minister Manuel Vall, meanwhile, has unveiled a “no-austerity budget” designed to cut the deficit more slowly than austerity advocates would like.
Monti has especially urged the EU (and Berlin) to consider more favourable treatment for public investments within existing rules.
Critics of Germany point out that while Berlin is keeping the eurozone in fiscal chains, the United States has loosened the reins — and that thanks to fiscal stimulus, the American economy is starting to grow.
At least for the moment, Berlin appears unwilling to deviate from its plan. But change may be around the corner. After all, while she is still very popular in her ninth year in power, Merkel is also under fire at home.
In a new book, The Germany Illusion, one of the country’s leading economists, Marcel Fratzscher, takes the government to task for declining to invest in infrastructure and failing to encourage private investment or foster a modern service sector that would yield better pay and thus fuel higher consumer spending.
Perhaps, Germany may finally listen. Latest forecasts spotlight a slowdown in the German economy, with economists underlining that the last thing the faltering European economy needs is a sudden downturn in Germany.
But others argue that a bout of German weakness may be precisely what is required to convince Merkel to loosen the fiscal reins at home and provide Europe with a dose of stimulus that struggling states like France and Italy have long been seeking.
If she does that, Europeans may once again rediscover their earlier respect for Merkel. Unlike the late British prime minister Margaret Thatcher, Merkel, as the ‘Iron Lady’ in charge of the future of both Germany and Europe, should not be afraid of “turning”.