In Europe, new fears of German might Monday, 24 October 2011 01:51

By Michael Birnbaum

For decades, Germany’s role in Europe has been to supply the cash, not the leadership. With fresh memories of war, the continent was cautious about German domination, and so were the Germans themselves. But the economic crisis has shaken Europe’s postwar model, and Germany increasingly calls the shots. As countries struggle to pay their debts, only Chancellor Angela Merkel has enough money to haul them out of trouble. And the price Merkel is demanding, more control over how they run their economies, is setting off alarm bells in capitals across the continent.

In Athens, protesters dressed up as Nazis routinely prowl the streets, an allusion to the old model of an assertive Germany. In Poland, accusations that Germany has imperial ambitions became a campaign issue in the recent presidential election. And although German leaders have sought in recent weeks to soothe others’ fears in advance of high-level meetings in Brussels on Sunday and in coming days, the tone has sometimes sounded pugilistic.

“The question of who could accept a German model has been settled by the market,” said a spokesman for German Finance Minister Wolfgang Schaeuble. “We are really only talking about the details and the extent of the measures, not about their nature.”

At $3 trillion in 2010, Germany’s economy is now half again as large as those of its nearest rivals, Britain and France. Its banks are far less exposed to Greek debt than those in France, insulating it from the effects of a possible Greek default. It has thus far committed $290bn to a European bailout fund for Greece, Portugal, Ireland and anyone else who needs it, significantly more than any other nation in Europe.

Misgivings about a larger German role in Europe have been apparent inside the country as well, with Merkel facing tough debates about the extent to which the country should commit its money to helping others. And the rest of Europe remains cautious about taking German medicine, needing the help but worried about the side effects.

“That’s the predicament of leadership,” said Joschka Fischer, a former foreign minister who has urged Merkel to do more to support the euro. “When Germany acts, there is the fear that Germany will dominate. If Germany doesn’t act, it’s the fear that Germany will withdraw from Europe.”

For nearly a half-century after World War II, West Germany operated out of the limelight, content to be an industrial power while leaving the politics to France, which didn’t have the same legacy of using force to get its way. If West Germany wanted something to happen on the continent, it whispered to its Gallic neighbor and let the proposal be presented jointly. Even the location of the rump state’s capital, in sleepy Bonn near the border with Belgium, symbolized a European orientation.

But when the Berlin Wall fell in 1989, Germany, long split between rival Eastern and Western blocs, announced plans to reunite, raising fears that a powerful nation at the heart of Western Europe would once again tower over its weaker neighbors. As a condition of French consent to the reunification, French President Francois Mitterrand demanded a steep price: that Germany give up its cherished stable currency, the deutsche mark, and bind itself to a common currency, and by extension to the broader tapestry of Europe.

That worked for years. But time and circumstance are conspiring to put Germany in the driver’s seat. Continental powers including France and Italy have faded in influence, while inside Germany the long caution about being assertive has mostly worn out. The German flag, long regarded with suspicion even inside Germany as a symbol of nationalistic pride, now flutters more and more across the country.

Until now, Germany has occupied a middle ground — critics would say it has shirked leadership — in addressing the economic problems that have gripped Europe for the past two years. Amid crises in Greece, Ireland and Portugal, Germany has resisted picking up the bill, and it has not articulated a clear vision for how to avoid the problems in the future.

In the long run, though, experts say that Merkel has little leeway to turn away from Europe, even though that course might be popular with some German voters. Germany makes its money by manufacturing high-quality products and industrial machinery that it then sells outside of its borders, so its success depends on those around it. A recession in the rest of Europe would quickly hit it, too.

At the highest levels of the chancellery, there is a sense that now is the time for grand plans, and Merkel this month called for far-reaching changes intended to impose greater economic policy coordination among the 17 countries that share the euro. A change could take years to take effect, but a first step could come at the G-20 meeting of world leaders on November 3.

Germany “has been in a constant reactive role,” said Fredrik Erixon, head of the European Center for International Political Economy, a Brussels think tank. Now, though, it “is at a place where it can largely dictate what it wants to see in other countries, and they have to go along with it.”

WP-Bloomberg