Europe at the crossroads

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14 mins. to read
Europe at the crossroads
Alexandros Michailidis / Shutterstock.com

In Germany, the Merkel era is drawing to a close. In France, there is uncertainty around whether Emmanuel Macron will be re-elected next spring. Euroscepticism is on the rise across Europe. What will Europe look like in a year or so? Victor Hill inquires.

Auf wiedersehen, Mutti

When Angela Merkel steps down after the German federal elections in September after nearly 16 years as Bunndeskanzler, the mainstream media will hail her as a European leader of unique stature and significance. It will take time before the view prevails that her long chancellorship has been a lost opportunity for Germany, Europe and the world beyond.

Last week the Chancellor began a valedictory tour of European capitals, during which the longest-serving democratic leader met the world’s longest reigning monarch in Windsor. As ever, she was dour, dogged, uninspiring and reassuring – and that is the point. Germans, by virtue of their painful history, wanted a safe pair of hands to guide them through the first decades of monetary union in which Germany emerged as the arbiter of European affairs: the last thing they wanted was a charismatic leader. (They had one of those in the 1930s and it did not end well.) Frau Merkel’s task was to ensure that Germany got her way while not frightening the horses. To some extent, she has succeeded in that challenge – but not without consequences.

Her longevity as Chancellor is evidence enough of her political acuity. Moreover, she will vacate the role of her own accord – the first of the eight post-war Chancellors to have done so. The only significant world leader who has been around longer is Vladimir Putin. Germany is the fourth largest economy in the world, it enjoys almost full employment and runs healthy budget surpluses. What can possibly be said against her? Well, here are eleven reasons why her reputation will have to be re-evaluated in time.

A Merkel: Charge Sheet

Firstly, after the European sovereign debt crisis of 2010-12, she imposed financial austerity on the European South without addressing the fundamental imbalances inherent in European monetary union. With the advent of the euro, Germany was able to eliminate exchange rate risk associated with the cost of its manufactures sold to other parts of the eurozone – the country effectively gained a cheap Deutschmark. To that extent, Germany was the greatest beneficiary of monetary union – as Helmut Kohl and others had foreseen just after the Berlin Wall fell.

But the Germans have consistently resisted the fiscal union that would be required to shore up the imbalances arising from the fact that one country – Germany – enjoyed huge technical and productive advantages relative to nearly all the others. The Germans under Frau Merkel also opposed an activist role for the European Central Bank (ECB) until such time as Mario Draghi insisted on doing whatever it takes to prevent another financial crisis in 2012.

Second, she did nothing to help David Cameron to win the UK in-out referendum of June 2016; and when the British voted out, she made life unnecessarily tough for Mr Cameron’s successors.

Frau Merkel, unlike previous German chancellors, particularly Willi Brandt who admired the way the British assisted West Germany in its post-war reconstruction and who spoke flawless English, has no facility for the English language. (Her Russian is much better.) She has never expressed much interest in the cultures of the English-speaking world. Her relations with British leaders from Tony Blair onwards were always correct but lacked warmth. (In contrast, she taught Barak Obama, whom she seemed to like, how to swear in German.)

She just could not understand Mr Cameron’s decision to hold a referendum at all; and, together with her supercilious French counterpart, François Hollande, vigorously opposed Mr Cameron’s demands for an emergency brake (on EU immigration) in February 2016. She remained aloof from the Brexit negotiations which were formally the sole concern of Michel Barnier and the European Commission – even though the UK is one of Germany’s most important export markets.

Yet it was the German Chancellor who had stoked Euroscepticism in the UK, not least by her decision to open the gates to a million migrants in 2015 (on that more below). And by plunging southern Europe into austerity, millions of its citizens fled north – not to Germany but to Britain. Many Germans think that the EU mishandled the negotiations by insisting on dynamic legal alignment, thereby forcing the British into a hard Brexit. Frau Merkel, like Emmanuel Macron, believed that Britain should be punished. That was a mistake – as will become more apparent over time.

Third, she has refused to respond to Washington’s plea to increase German military expenditure to a level commensurate with Germany’s economic standing.

Fourth, her policies increased Germany’s commercial dependence on the Chinese economy. For Frau Merkel, China is a cash cow that consumes German machinery with gusto. As such, she has resisted all efforts to make a united front against Chinese excess. Frau Merkel has visited China 12 times during her chancellorship, but human rights have never loomed large in her dialogues. But now China, under President-for-life Xi, no longer wants to be dependent on foreign manufactures. 

Fifth, by backing the Nord Stream 2 pipeline, she has made Germany reliant on Russian energy supplies (and fossil fuels) for the foreseeable future. The direct pipeline from Russia to Germany through the Baltic Sea is dreaded and resented by Poland and Ukraine since it will make it easy for Mr Putin to switch off their gas supplies while continuing to trade with Germany. Moreover, it will deprive those countries of their gas transit revenues. But nothing seems to dampen Frau Merkel’s enthusiasm for the project – not even the attempted assassination and subsequent imprisonment of Alexei Navalny.

Sixth, most Germans wanted Germany to take a lead in tackling climate change, but after 16 years of Frau Merkel, the German grid is still about one quarter dependent on lignite (brown coal). In the wake of the Fukushima disaster (2011) Frau Merkel went along with the German backlash against nuclear power, with the result that Germany, uniquely amongst European economies, has no nuclear contribution to its energy mix. Germans now perceive that Frau Merkel has talked the talk but not walked the walk on climate change. And her Christian Democratic Union (CDU) has been haemorrhaging votes to the Greens in recent elections.

Germany managed to reduce carbon emissions by 35 percent between 1990 and 2019. However, the country recorded just an eleven percent fall in the decade between 2009 and 2019. In comparison, the UK has achieved 44 percent and 24 percent reductions over the same periods. The German Greens have proposed a target of reducing carbon emissions by 70 percent by 2030 relative to 1990 levels. The accusation is that Chancellor Merkel lacked the will to upset the German automotive and energy industries.

It is true that German automotive giant Volkswagen (ETR:VOW) has now thrown itself foursquare behind the electrification agenda after a hesitant start – and in so doing its share price is up 50 percent over 12 months. But Frau Merkel’s prospective successor, Armin Laschet, has a track record of supporting coal-fired power stations and is lukewarm on climate change. By contrast, the UK aims to phase out the use of coal entirely by 2025.

Seventh, Germany’s response to the second wave of the coronavirus pandemic has been patchy. In the first wave (March-July 2020) Germany was perceived as having fared better than most of her neighbours. But since last winter the German mortality figures have converged with those of other large European countries. It is true that health policy is the responsibility of Germany’s 16 Länder (states); and, of course, vaccine policy was devolved up the chain of command to Brussels. But this last six months has not been the Federal government’s finest hour. Frau Merkel vacillated over her own vaccinations and sought to outdo Emmanuel Macron in undermining confidence in the AstraZeneca jab. It was an unedifying performance which has stoked high levels in vaccine hesitancy in a country otherwise renowned for its rationalism.

Eighth, Frau Merkel will leave Germany ill adapted to the digital age. Germany remains, paradoxically, a prodigious exporter which is still wary of globalisation. In the years after WWII, Germany’s technocratic and collaborative approach to economic development created the Wirtschaftswunder. German manufacturing became a byword for quality and design excellence. Yet today Germany has fewer kilometres of fibre optic cables than Turkey.

Ninth, German regulation is ineffectual. Most of the corporate scandals of the last decade – most egregiously the VW emissions scandal – have been exposed by foreign journalists. Who knows what other monstrosities lurk beneath the surface?

Tenth, while Germany is an economic colossus, its growth rate has been lacklustre under Frau Merkel’s leadership. Germany has had one of the slowest growing economies in the EU over the last 20 years. According to the OECD, productivity growth in Germany has averaged 1.2 percent annually since 1995, compared with 3.9 percent in Korea and 1.7 percent in the USA.

Eleventh. When Frau Merkel opened Germany’s borders to a million or more refugees – mostly young Syrian and Afghan males – in the summer of 2015, she was hailed by the western liberal establishment for her humanity. But for neighbouring Hungary and Poland – who were not even consulted – this was a calamity. Germany’s neighbours were instructed they had to take their fair share of refugees. The action only stimulated more demand from the new mobile class of economic migrant who have cash to pay traffickers and carry mobile phones, suggesting that they are not destitute as the liberal media normally claims. Greece is still struggling vainly with the consequences.

Clearly, many of these issues remain unresolved. And Frau Merkel’s successor – be it the uninspiring Herr Laschet, the continuity candidate, or Green Party chancellor-candidate Annalena Baerbock – may not be so successful in concealing them. If Die Grünen gain the upper hand in the next coalition, as now seems possible, then Germans can expect tight speed limits on their Autobahnen, carbon taxes, a Tobin tax (on financial transactions), wealth taxes and higher corporation taxes. This will weaken German competitiveness at precisely the moment the country’s economic model is in need of modernisation.

Moreover, Germany is constitutionally incapable of launching a Bidenesque spending spree to stimulate the economy. That would be in breach of Germany’s Grundgesetz (basic law). The debt brake limits the structural deficit to just 0.35 percent of GDP. A change to that restraint would require a two-thirds majority in both houses of parliament (Bundestag and Bundesrat). And it is doubtful that any prospective coalition could agree to Paris’s demands for an EU Ministry of Finance without a collision with the country’s constitutional court (Bundesverfassungsgericht).

The veteran German commentator Thomas Kielinger has concluded that Frau Merkel has outstayed her welcome. Even the British Germanophile John Kampfner (author of Why the Germans do it Better) thinks that when she retires the Germans will have to live without the comfort blanket that has shielded them for so long. The fact that the Germans have kept such an unadventurous leader in power for so long suggests that the national talent pool is blocked.

Armin Laschet at least has said: “We must do everything we can to keep the British very close alongside us”. That does not make him an Anglophile; but unlike ice-maiden Merkel, he could emerge as a constructive friend.

French revolution

How Frau Merkel will be perceived by history may seem a touch academic. But the advent of a new coalition in Germany with green credentials may be followed within eight months or so by a change of government in France as well. The personality (and ideology) of President Macron’s successor may disrupt the Franco-German dynamic.

In the French regional elections held over 20 and 27 June, President Macron’s political party, now called La République en Marche (LREM) did not win any seats in any of France’s 13 metropolitan regions (including Corsica, where the separatists now dominate). True, Marine Le Pen’s party failed to win Provence-Alpes-Côte d’Azur, as projected. Instead, Les Républicains topped the poll, winning seven regions with the Socialist Party retaining five. In the first round LREM gained 11 percent of total votes cast; in the second round it was much the same. Mind you, voter turnout was just 30 percent, suggesting a high degree of apathy.

Monsieur Macron’s fundamental problem is that LREM (or whatever it is called this week) is a flimsy start-up political party with no deep roots of affiliation. Just like one of Mr Farage’s ephemeral creations this side of La Manche. When a protest party gains power, what does it protest, apart from its opponents?

The yield on French government debt has risen appreciably in the last six months, with France’s debt-to-GDP ratio now at 115 percent. In absolute terms, it’s higher than Italy’s debt burden at €2.7 trillion. Most commentators think that all bets are off for the presidential election of 2022. But if the traditional centre-right party has the upper hand who would their candidate be? Michel BarnierXavier Bertrand? There is all to play for.

The popular wisdom is that the second-round run-off next year will be between Emmanuel Macron and Marine Le Pen of the Rassemblement National (RN, formerly the Front National) even though the RN fared worse than expected in the regional elections. But there are other candidates who may emerge to challenge Monsieur Macron from the right – not least the writer and philosopher, Eric Zemmour, who combines a neo-Marxist economic analysis with an extreme conservative social agenda, as only a French intellectual could. (I’ll consider his world view in detail another time – suffice to say for now that he regards the EU as the enemy of the nation state.)

What France’s various right-wing factions have in common is that they believe France has become decadent and has lost control of the banlieue; and they hold the established elite of Enarques in total contempt. Then there is an array of medieval swordsmanship enthusiasts – like the man who struck Emmanuel Macron in the face on 08 June – who are often also holocaust deniers. Not Monsieur Zemmour – he is of North African Jewish heritage, though he has been convicted of hate-speech in the past.

From a British perspective, Monsieur Macron’s departure would be welcome. France has adopted an increasingly Bonapartist tone towards the UK since our formal departure from the EU on 01 January. The historian Robert Tombshas compared the EU’s restrictions on trade between Europe and the UK since then with Napoleon’s Continental System.

And did Macron succeed in reforming France, as promised? Last month the president was forced to abandon plans to raise the pensionable age to 64. France’s pension spending as a proportion of GDP is nearly double the OECD average of 7.7 percent.

Neither Merkel nor Macron emerge from the pandemic with their reputations enhanced. The vaccine rollout, at least in its early stages, was shambolic in both countries. Both leaders manipulated public opinion on vaccines and continue to pursue inconsistent policies on quarantine. Their refusal to supply vaccines to Australia will not be forgotten. Their Pecksniffian interpretation of the Northern Ireland Protocol is undermining the peace process there – not that they apparently care.

Legacies

Most significant of all: these two have done more than any previous leaders to alienate ordinary Europeans from the ideal of Europe. The Eastern Europeans now form a distinct bloc with their own values, concerns and agenda, and they bitterly resent the endless righteous indignation coming out of Berlin and Paris. The Southern Europeans (the Club Med), who are on the front line of the migrant crisis and who have been worst affected by the pandemic, perceive that they are the ones most required to make sacrifices. They have little faith in the management of the Recovery Fund. The frugal Northern Europeans think that they are always the ones forced to pick up the tab.

The European monetary union could not survive another protracted slump in the Club Med. At some point within the next two years, Berlin will have to decide whether to endorse a genuine fiscal and debt union, even as Italy’s debt-to-GDP ratio nears 170 percent. If it does not, then the future of the single currency will once more be put in question and financial instability will ensue.

It will be the next leader of Germany, in concert with whomsoever is president of France next May, to answer the question left hanging since the Treaty of Rome in 1957. Is the EU to become, as De Gaulle aspired, une Europe des patries (an alliance of nation states) – or a federal superstate? If the former, then the more Europe agenda of the French will have to be restrained; if the latter, then several countries may follow Britain to the exit.

The irony is that Germany and France are still jockeying for the centuries contested role of who runs Europe; while the Chinese are focused, laser-like, on who runs the world.


Comments (8)

  • John Davis says:

    As usual you insist on trying to promote the Brexiteer dream, that the UK is so important that without it the EU will break up. Except it won’t, as poll after poll shows. If they were keen on the Single Market before, they are doubly keen now they can see for themselves how much business suffers by being out of it. Dream on, as only a Brexiteer can, in the face of the more likely reality of a breakup of the UK union and the collapse of the UK economy.

  • Barry Massey says:

    This article is a very interesting and reflects the composite Mellon / Master Investor geographical and political view of the world, which is partially right but lacks understanding and perception of how Continental Europeans see the world. The French – German (and also Italian) compromise is the Infrastructure of the post 1945 peace process. It will not break. The divide in the EU is financial and north-south. The Germans are now paying for it, and will continue to do so to maintain their markets in Italy, the Iberian Peninsula and the Balkans. Following the UK accession to the EU it took about 10 years to get the fruits of the trade advantages, and 20 years to get the technology and company structural investment boost. the British adaption to the Brexit will be long and hard. It will be very difficult for the Brits to run a combination of Mercantilist International Free Trade with the ROW while cemented to a Centrist Trading Block. I am confident that the UK will achieve it, but it will require a significant sacrifice in the UK standard of living and a significant increase in taxation. Think back to the 1950’s.

  • Andy McDowall says:

    I don’t agree Mr Davis. I thought Victor Hill’s views were fairly balanced and certainly didn’t promote Britain leaving Europe in any way. Germany and France rule the EU as though they own it, to the detriment of nearly every other country, apart from the odd Scandinavian one.
    Also Britain is and remains one of the most wealthiest countries in Europe and we now have the ability to negotiate trade deals with almost anyone we wish. It appears that you seem to be rather disheartened by this . We had a democratic and free vote almost 6 years ago. Time to move on and accept the decision I think.

  • Edward Xylem says:

    Mr Massey, interesting comments but with which nation does Germany have the largest net exports?

  • Bob Grainger says:

    @ John Davis – project fear still alive and flourishing in your mind?

  • Barry Massey says:

    Your point is an interesting one. That is not the right question Mr Xylem. We should be clear minded – as the Germans are- consider what are the benefits to the UK economically and trade terms. The UK runs a large trade deficit with Germany, which is not balanced by non-trade and financial earnings. I suspect that the benefits to the UK are in employment in auto assembly and an infrastructure of parts manufacturers and in the logistics chain. However if you could expand your remarks, as an academic, I would be happy to do do some calculations. Hoping to hear from you.

  • Richard says:

    Victor Hill for Prime Minister !

  • NAP says:

    A very well written article by Victor Hill. Please ignore the idiotic comment above from John Davis. On the contrary, I found this to be a balanced and thoughtful article and is far from the propaganda type hack pieces one usually stumbles upon in the media on this topic. I always enjoy reading Victor’s articles. He’s very knowledgeable and I learn so much from him.

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