Über Alles After All: Europe’s German future
February 6, 2012
Last week Germany reclaimed its status as the leading power in Europe. In the two years since it became apparent that Greece was, essentially, bankrupt, there have been dozens of emergency meetings of the countries that use the common European currency, the euro. Most of the euro-using states believe that Germany—with a booming industrial economy, vast trade surpluses, a reputation for fiscal probity, and a history that makes it reluctant to reject the counsel of France—ought to cover the bill. Germany has long argued that Greece must become competitive again by selling off state assets and cutting government handouts. More recently, Germany has added another demand—that EU authorities be empowered to discipline Greece and other delinquent countries. At the Brussels summit on January 30, the Germans won.
Germany is fortunate to have, in the moment of its triumph, a chancellor who does not scare people. Angela Merkel is an East German intellectual, a physical chemist, the childless daughter of a clergyman. She mumbles. Her taste in clothing runs to pantsuits. She isn’t brawny and forceful like her Christian Democrat mentor Helmut Kohl, who presided over the reunification of Germany at the end of the Cold War. She isn’t eloquent and haughty, or tempestuous and randy, like her Social Democratic predecessors Helmut Schmidt and Gerhard Schröder, respectively. “This lack of a presidential demeanor is a big advantage,” says longtime Bavarian governor Edmund Stoiber, whom Merkel replaced as party leader. Germany’s economy naturally provides it with a leadership role, but its history means that that role is something Germany cannot be seen to claim. “Neither personally nor politically does she come off as wanting to blow her own horn, along the lines of ‘I am the leader of Europe.’ ”
By “Europe” Stoiber means the 27 countries that make up the European Union. The EU was launched in the wake of the Second World War as a way to organize Europe through economics, not war. This is a polite way of saying it was meant to keep Germany from dominating Europe with its army. A decade ago, the EU acquired a common money, the euro, which replaced the franc, the lira, the peseta, and the super-strong deutsche mark. The new monetary regime was meant to keep Germany from dominating the continent with its currency.
But the euro has backfired. In 1990 British trade secretary Nicholas Ridley was forced to resign for calling the EU “a German racket designed to take over the whole of Europe.” Ridley was quite wrong about Germany’s intentions, but he was right about the result. Joining Germany in a currency union meant playing by its rules. In fact, so big and rich is Germany—particularly now that reunification has brought its population to 80 million—that joining it in anything means playing by its rules. This is not Germany’s fault. It is the classic “German problem” that has confronted Europe for the whole modern era. It was camouflaged for six decades only by Germany’s reluctance to express any wishes whatsoever.
As long as Germany wasn’t complaining, others could make free with Germany’s credit card. Once in the euro, Greece, Italy, Spain, and other countries that bankers used to consider reckless or unstable could borrow at the same rates. (The treaties that bound all these dissimilar countries together stipulated that there would be no bailouts for those who borrowed too much, but bankers obviously didn’t believe that.) A boom in lending pushed up wages and prices in those “peripheral” countries, rendering them uncompetitive. After the financial crisis of 2008, the countries that had overborrowed were saddled with more debt than they could comfortably repay. The eurozone’s Mediterranean members have come to think that Germany ought to rescue them. But the Germany to which they are addressing their petitions is not the penitent, diffident, and easily browbeaten land that they came to know over the last three generations. Germany has its own ideas about economics and morality, and it is ready to insist that its weaker neighbors adhere to them.
On Your Mark
Those ideas are idiosyncratic. Germans never made their peace with twenty-first-century consumerism in the way other Westerners did. Their attitudes about money combine punctiliousness and distrust. Any business traveler who has ever asked for a receipt in Germany will have been astonished by the elaborate ritual of writing out a Quittung: You buy a newspaper for a few coins. The shop-owner retreats into a back room, emerges with stationery, writes a description of the transaction in elegant longhand, saves a carbon duplicate, stamps or embosses the paper, staples or clips the cash-register receipt to it, folds it, and slides it into an envelope for you.
Credit is frowned on. There are quite elegant restaurants that don’t take credit cards, and installment buying in general has been slow to take hold. Walmart tried to expand into Germany in recent years but had to close all 85 of its stores in 2006. Germans didn’t take to the faux-smiley demeanor of Walmart’s employees, and the company found it hard to keep prices low while complying with national labor laws. The car loan market is underdeveloped. Home equity loans are practically unknown. That is one reason why Germany had no mortgage bubble of the sort that upended so many Western economies over the last decade. Another is that Germany does not really have an investment banking sector as we would understand it.
Germans usually explain their eccentricities about credit by referring to the hyperinflation with which their leaders tried to mitigate the burden of reparations from World War I. Germany’s treasury printed so much money that, in 1923, prices were quoted in the trillions of marks, shoppers pushed their shopping money around in wheelbarrows, and restaurant menus were edited hourly. That inflation, and the austerity required to purge it, may have played a role in the rise of Hitler. Germans associate their emergence from the rubble of World War II, by contrast, with the deutsche mark, the currency set up under American military rule, and the Bundesbank, the conservative, incorruptible, and coldly competent institution established to preserve its value. Bundesbank presidents were revered figures, more often than not at loggerheads with the elected chancellors they served. And they cast their shadow over German democratic politics, according to Klaus-Dieter Frankenberger, foreign editor of the Frankfurter Allgemeine Zeitung. “You don’t advance your electoral prospects by loosening the tap of monetary policy,” Frankenberger said this fall.
The German public was dragged into the euro reluctantly and would never have consented to it had they been consulted. “The euro has always been the ‘Golden Calf,’ so to speak,” says Barclays’s economist Thorsten Polleit. “It was forced upon Germans.” There is still a lot of debate about how it was forced upon Germans. The most common explanation is that French president François Mitterrand insisted on the euro as a condition of Germany’s reunification. A number of Germany’s top politicians and economists assured citizens that the new currency would hold prices stable. That turned out to be right. They also promised that this would not mean sharing wealth and bailing out laggards. That turned out to be wrong—and perhaps catastrophically, apocalyptically wrong. In the late nineties, “many chief economists did a lot of client presentations where they told people the euro would be as stable as the German mark,” says Jörg Krämer, chief economist at Commerzbank. “I am quite happy I was young enough not to have had to do this.” …
H/T Expat
