The economic historian discusses Germany's crisis and the future of Europe
The technocratic class tends to hero-worship the German state for its efficiency, pragmatism, post-war modesty and liberalism. Former Chancellor Angela Merkel is remembered as their standard-bearer: strong, rational, in possession of the stern dignity every leader should aspire to. John Kampfner’s 2021 book How the Germans Do it Better: Lessons from a Grown-Up Country represented the acme of this sycophancy.
Few titles have seemed so out of date so quickly. In the past week the German economy has entered complete crisis. The price of electricity is surging, currently at 14 times the average. A recession is predicted, inflation already soaring. The Euro has dipped beneath the dollar for the first time since its conception. And most of the German population are not happy with their leadership. What happened to Europe’s modern success story?
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The economic historian, Professor Wolfgang Streeck, has long been a critic of Merkel-mania and never fell for the Kampfner school of thought. He foretells that a combination of historic policy failure and the breakdown of the ‘globalised economy’ will lead to the demise of German dominance in Europe. Germany’s fall from grace will be precipitous, and its effects will be widespread. As the war in Ukraine rumbles on, a strategically independent Europe will give way to reliance on America, and the strength of the European Union will ebb.
The conditions that led to Germany’s astronomic rise – a globalized economy, minimal barriers to trade, an artificially low euro – are collapsing. Today, the optimism that once surrounded Germany and its too-big-to-fail state looks increasingly naïve.
“There was a very strong belief that the kind of borderless global economy in which Germany thrived would exist forever. In other words, that globalization had reached a stage where it was irreversible,” Streeck says.
Fast forward thirty years and we have learnt that the globalized economy, integral to Germany’s success, is in fact highly sensitive to “crisis, interruptions, fractions.” This is best evidenced by the shockwaves caused by the invasion of Ukraine, mounting tensions between the West and China, and disruptions to supply chains caused by the pandemic.
“We hear that we should no longer trade with China. Now you can imagine a company like Volkswagen, which is selling more cars in China than anywhere else in the world, may have a real problem if the Chinese market is closed for German products, in the same way in which the Russian market is now closed for German products.”
As hopes for a permanent globalized utopia dissolve, Germany will face “an enormous adaptation.”
First, it will have to endure a hard winter made all the worse by an energy crisis of a scale not seen in generations. Germany’s over reliance on Russian gas will make it particularly painful, and should be understood as one of the worst examples of short-termism in political history. The Greens anti-nuclear bent is encoded in their DNA. And since the 1970s both the German Social Democrats and Christian Democrats have been competing to pull the party into a coalition, the price of which was an anti-nuclear policy.
When Angela Merkel came into power, she was a fanatic supporter of nuclear energy. But when she wanted to change coalition partner from the Social Democrats to the Greens, within a matter of weeks, she restarted Germany’s de-nuclearisation. “This is the reason why energy had to be bought somewhere else. Because we couldn’t produce it anymore.”
The consequences of this crisis on the European Union will be profound. Germany and France are the central locus of EU power in the European Union, akin to an empire powered by the centre but in which the periphery benefited sufficiently. But when the center starts to crumble, what happens to that periphery?
“The Union is already on the brink of disintegration. Think about the Eastern countries – Hungary is playing the role of a spoil sport. Poland has its own ideas of what the EU is for, namely to help Poland prosper and nothing else. And anti-German sentiment, both in the East and in the South is absolutely growing. Meanwhile, Britain has left.”
Simultaneously, calls for extending membership to Ukraine and several Balkan states are growing louder. They will have to be subsidized by the central economies but will also shift the power balance in the Council, and the whole system will become politically untenable.
“The result is that I think the European Union will lose significance for its member states in a gradual process of decay, where increasingly you’ll find sub-collections of member states like the East, like the Mediterranean, doing their own thing.”
Might even Germany turn its back? As it navigates the vast impending hardship Streeck thinks we ought not rule it out. When Trump was elected he inherited a nation in decrepit condition. And the American electorate, in its majority “pointed out that they now wanted a government that took care not of an empire, but of America itself. That was the idea of America First. The Trumpian America First thing was not “Now we are going to conquer the rest of the world, but it was quite the contrary: “Now we must take care of our own country.”
If a Germany First movement is conceivable, the war in Ukraine could be the ultimate catalyst. In spite of early claims that the invasion would be complete in 3 weeks, the stalemate shows no signs of abating.
“Wars always take longer than expected when they begin – they feed themselves, and the more difficult it becomes to try to reach out and make an agreement.”
As the war drags on, the emerging global power dynamics will become further entrenched. The Eurasian continent will become divided. On one side a “Russian-Chinese alliance, where the Chinese call the shots.” And on the other, a Europe that has little strategic autonomy but instead acts as an auxiliary force “in the upcoming battle between the United States and China.”
Germany will find itself strategically and economically diminished, its European superpower status a casualty of a radically changing world. The global economy, in its current form, is proving itself unsustainable. And in its place arrives a bifurcated world with an American sphere of influence and a Chinese sphere of influence. In between will sit weakened and fractious Europe forced into the United States’s orbit.