The Problem of German Ambition

By Michael Brendan Dougherty 

Wednesday, June 16, 2021 

In the UEFA tournament, Germany started its match with France by scoring an own goal. The idea of French players pushing forward aggressively, only for Germany to harm itself, was oddly redolent of international politics these days.

French president Emmanuel Macron has spent most of his presidency charging ahead with demands of reform and greater ambition for the European Union. In recent months, Germany’s government, led by Angela Merkel, has begun carrying this through with a series of ambitious policies meant to make European integration easier, and European geostrategic independence from America more thinkable.

But one wonders if the ball is about to land in Merkel’s own net.

The euro zone has had the horrible riddle of having a single multinational monetary policy, but being fiscally divided by member states. The mismatch means that national governments have only fiscal tools for dealing with a crisis, and the European Union only has the monetary tools. A functional government needs both. You may remember debt peonage for Ireland, persistently high youth unemployment in Spain and Italy, and the flameout populist revolt in Greece. Meanwhile, Germany seemed to benefit from the way the euro slightly deflated prices and made its export economy viable in a way that would be difficult to maintain with the old deutsche mark.

The dissatisfactions and resentments this mismatch generates make further integration politically impossible. Germans feel they are carrying along southern Europeans who won’t work and southern European governments that can’t keep a budget. Non-Germans feel that Germany is getting the lion’s share of the employment benefit and political stability from a currency union.

But suddenly there was a double opportunity. With Brexit wrapping up, ambitions for further integration and harmonization across the EU have been cut away from the anchor that was Parliament and the British pound. And along came COVID-19 and the opportunity to do big things with the institutions on hand. The European Central Bank (ECB) found a way of pursuing a monetary transfer without being too obvious about it. The European Central Bank pursued a policy of reflating the European economy, with a Recovery Fund and a very ambitious pandemic-asset-purchase scheme that is front-loaded in certain countries.

It is a disguised bailout of Mediterranean governments. And it is happening just as the German economy is heading into a hot summer. Inflation has started to rise there already. And nothing makes the guardians of Germany’s political moderation more nervous than rapid inflation. A warning shot was put into Börsen-Zeitung by the former chief economist of the ECB, Jürgen Stark, saying that the scheme would end with “either a break-up of the currency union or a gigantic transfer union.”

In other words, German elites have recognized this attempt to prevent the immovable object of German public (and legal) opinion from colliding with the irresistible force of Italian debt. The resulting political intrigue could bring about the very disaster it is designed to avoid — a collapse of trust in Italy’s stability and a subsequent anti-EU reaction of the German public.

Perhaps just as distressing, as the G-7 conference ends it has become impossible not to notice that Germany is trying to effect a change in its role on the geopolitical stage with respect to America. Earlier this year, the German government and its allies within the EU bureaucracy tried to ram through an investment deal with China. And now, they have succeeded in making Washington accept that the Nord Stream 2 pipeline is, in the words of Secretary of State Antony Blinken, “a fait accompli.”

That pipeline will likely deprive the Ukrainian government of over a billion dollars in annual revenue through its own pipeline system. More fatefully, it invites Russia deeper into European politics, where it will inevitably agitate Poland.

Germany has sought these changes vis-à-vis Russia and China in order to feel more free of the constant push from Washington. But, if the demands from America to spend a bit more on NATO chafe, how will Germany react to the demands that inevitably come from Moscow and Beijing?

Merkel’s attempt to make her Christian Democratic Party all things to all people is bringing about a core meltdown of German politics, just as her government has tried to transform its place in Europe and Europe’s place in the world. The ball is drifting dangerously close to her own goal.