THE WARSAW INSTITUTE REVIEW

Date: 5 June 2017    Author: Krzysztof Rak

Reconstruction of Power – Germany’s foreign policy after the September election (an attempted forecast)

The priority of the new German cabinet, which will be formed after the September 2017 elections, will be an attempt to reconstitute Germany’s international position and emerge from the isolation of 2015-16.


© Michael Ukas (EPA/POOL)

If, however, they are not able to accomplish this task fully, they will gradually improve relations with their most important partners. Contrary to current declarations, it won’t be thanks to revived cooperation with France, but with America and Central Europe. These efforts will probably lead to the emergence of a new international constellation in Europe that Poland should take advantage of.

Limits of power

The problem of Germany is their indeterminacy of power. They do not have the resources to become a fully-fledged global power, but on the other hand, they are too strong to be satisfied with being an important player in the European or even the Eurasian region. This paradox of power means that they are unable to gain a hegemonic position, because when they try, it always ends up in a fiasco, from a dearth of resources.

The basic weakness of Germany is due to limited military resources (a lack of nuclear weapons and expeditionary forces), which could significantly affect the global balance of forces. They are responsible for this, as Berlin’s most important regional partners allocate many more resources to the armed forces, despite their worse budgetary and economic situation. According to SIPRI (Stockholm International Peace Research Institute) data, in 2016, Germany spent 1.2% of GDP on defense, France – 2.3%, Great Britain – 1.9%, Russia – 5.3%, China – 1.9%, and the USA – 3.3% .

Germany’s potential is adversely affected by a demographic catastrophe, the effects of which will be felt to an increasing degree in the coming decade, when the post-war baby boomers retire. The number of welfare state beneficiaries will increase, while the number of those working to support them will decrease. Contrary to hopes, immigration is not a recipe for solving this problem. The vast majority of immigrants are likely to become welfare recipients. Thus, the migration wave that hit Germany in 2015-2016, will probably exacerbate the impact of the population crisis, as the admission of around one million migrants cost more than 20 billion euros. On this point, if the Germans had allocated this amount to military spending, they would have been close to reaching the 2% of GDP range for defense spending in NATO. There is little doubt that the demographic processes, and above all, the aging of German society, and the increasingly burdensome spending on immigrants, will be factors that will undermine Berlin’s power potential over the long term.

Germany owes its powerful position to economic and administrative resources. The German economy owes its success to the reforms carried out at the beginning of the century by the social-democratic chancellor Gerhard Schröder, who increased flexibility in the German labor market. As a result, over the last decade, labor costs have grown more slowly in Germany than in other European countries. This in turn has resulted in an increase in the competitiveness of the German economy. The most measurable effect of these reforms is the record-breaking surplus of trade balance. According to the Federal Statistical Office in Wiesbaden, in 2016, Germany exported products worth 1,207.5 billion euros and imports amounting to 954.6 billion euros. The surplus in foreign trade reached a record level of 252.9 billion euros, which is over 8% of German GDP (amounting to 244.3 billion euros in 2015). In addition, the budget recorded more revenue than expenditure. This unique situation plays a critical role in relations with Berlin’s key partners.

Second to the economy, the key power resource for Germany is diplomacy. Berlin wants to become an indispensable state for the existence and operation of many international constellations, both global and regional. It thus implements the old principle of Chancellor Otto von Bismarck, according to which Germany should have better relations with its most important partners than they have with one another. Thanks to this they play the role of a global pivot.

We can distinguish the four most important constellations for the position of Germany:

  1. Global, where the United States is the most important partner;
  2. Continental (Eurasian), which constitutes relations with Russia and China;
  3. Regional (European), where cooperation with France is key;
  4. Subregional (Central-European), for which relations with Poland are essential.

In the first two constellations, Berlin tries to play the role of stabilizer for the balance of power, while in the latter two, as leader. Over the past few years, the role of Germany in each of these arrangements has considerably weakened. (The problem is discussed in detail in the previous issue of the WIR – https://warsawinstitute.org/pl/germanys-inglorious-isolation-2). Germany has found itself in a state of quasi-isolation, partly due to independent internal causes (like the financial crisis), and partly due to its own mistakes (migration policy in the second half of 2015).

Therefore, the prediction that the new federal government formed after the September election will try to improve the position of Germany, seems to be a safe, if not obvious one. And this is regardless of who wins. At the time of writing this analysis (late June 2017), according to public opinion polls, the most likely outcome is a CDU/CSU victory and continuation of the coalition with the SPD or the creation of a new one with the liberal FDP.

The current Christian Democratic coalition already saw the problem of deteriorating relations with key partners as early as the beginning of 2017, and began working to improve Germany’s international position. Relations with China clearly warmed, which had cooled in 2016, when Berlin accused Beijing of dishonest practices by buying German companies to acquire German know-how. However, in March 2017, Chancellor Merkel and President Xi demonstratively spoke out against protectionism and “for free trade and open markets”, and in July, before the G20 summit, announced a “comprehensive strategic partnership”. Relations with Moscow improved to an extent when German politicians protested against a resolution by the U.S. Senate to impose sanctions on Western companies that decide to finance the construction of pipelines from Russia (Nord Stream 2).

The revival of cooperation in the Eurasian triangle of Berlin-Moscow-Beijing does not, however, testify to a change in the vectors of German foreign policy. It is rather a reaction to the momentary collapse of its most important pillar, which is transatlantic relations.

Leadership crisis

This unfolded in spectacular fashion at the G7 summit in Sicily at the end of May 2017, where the President of the United States, Donald Trump, rejected the current climate policy. A few days later, in a speech in Munich, Chancellor Merkel decided that “we, Europeans, must take our affairs into our own hands.” On the other hand, the German Foreign Minister, Sigmar Gabriel, not only declared that the United States “does not play a leading role in the Western community of values”, but in general questioned their membership in the West. These words were recognized both in the German as in the American press as the end of the “partnership in leadership“.

At first glance, the German reaction to America’s position at the G7 summit in Sicily appears to be exaggerated, and results not from reflection on the strategic arrangement of global forces, but on the tactical needs of the country’s own upcoming election campaign. The Social Democrats would like to play the anti-American card to save their weakening position, which is to repeat Gerhard Schröder’s 2002 maneuver, which helped him win that election. In criticizing Trump, however, Chancellor Merkel deprived the Social Democrats of a possible “trump card”.

Anti-Americanism, which represents a part of German society, and the distaste of the elite towards the anti-establishment Trump cannot overshadow the key role of the U.S. in German foreign policy. Without a “partnership in leadership”, Berlin will not play a role in the concert of global powers, among other reasons because they have no armed forces that could be sent outside their borders. What is more, due to the pacifism of their society, it seems doubtful that the Germans would be able to develop such a force in the foreseeable future. Angela Merkel is certainly aware of the dependence of Europe on the U.S. military for stability and security, since she relied on it for crisis diplomacy in Ukraine in 2014-16. The role of the German Chancellor as the main player in the peace negotiations in Ukraine was possible only through close cooperation with U.S. President Barack Obama.

© Friedmann Vogel (PAP/EPA)

You don’t need extreme foresight to see that the attractiveness of Germany for its continental Eurasian partners, Russia and China, depends on their degree of closeness to America. For Moscow and Beijing, Washington is their priority partner, because Washington has the greatest influence on the shape of the global system. Germany’s unique position was that, through “partnership in leadership”, they exerted an indirect influence on the shaping of the world order by the United States. If the Germans lose it, to become a global player in the full sense of the word, they would have to become one of the continental (Eurasian) poles of an anti-American coalition. And the weakest one at that, because it has no significant military power.

In the coming years, Berlin will therefore face a geostrategic choice: either return to partnership in global leadership with the U.S. or degrade to the role of regional power. It is therefore very probable that the new German government will try to repair relations with America. But this will not be easy should President Trump retain an anti-German grudge.

European disease

The deepening, multi-dimensional crisis in Europe will be conducive to the pursuit of rapprochement with America. This is all the more so because it is unlikely that a return to traditional German-French cooperation will be possible in the foreseeable future.

Until the financial crisis that began at the end of the first decade of the 21st century, Berlin seemed to be well on its way to achieving a leadership role in this constellation, framed by the Germany-France-Great Britain triangle. Berlin’s skillful balancing act gained them the position of primus inter pares (first among equals); however, the financial crisis and then Brexit destabilized this equilibrium.

France had been a key partner for Germany on the continent since the end of World War II. By the time of German unification, successive chancellors at least formally recognized the political leadership of Paris and, in return, could safely build the economic power of their country.

In the early 1990s, the French, struggling with the inability to catch up with the ever-accelerating German locomotive, came up with the diabolical idea of ​​liquidating the symbol of Germany’s economic power — the German mark. The introduction of the common currency was not however accompanied by a deepening of political integration, as the political union par excellence, in their opinion, would undermine their own position as a European leader. President Mitterrand was not so concerned with Europe, but about the growth of power of France at the expense of Germany.

When men plan, God laughs — the effects of this policy turned out to be opposite to their intentions. France’s position relative to Germany has been steadily declining for two decades. The common currency has led to a structural crisis in the eurozone, to its division into creditors under the leadership of Berlin and debtor states for which Paris has become the leader. Of course, this division has its historical roots connected with the development of nineteenth-century capitalism, which divided the continent into the rich north and the poor south. The introduction of the single currency only deepened and highlighted these developmental differences and will therefore be the major factor destabilizing European politics in the coming years.

The eurozone crisis is a textbook example of faith in the primacy of politics over economics. Already half a century ago, economists devised the theory of an optimal currency area, where a single currency could be introduced. Such an area may consist of many countries, provided their economies are at an equal level of technological and knowledge development, producing similar products, and responding in a similar way to supply-demand shocks. One of the authors of this theory, Robert Mundell, was awarded the Nobel Prize.

From the beginning, it was clear that the eurozone is not an optimal currency area, and that Greece cannot have the same currency as Germany. The crisis in the eurozone has become an empirical confirmation of Mundell’s theory. The division between debtors from the south and creditors from the north is thus systemic in nature, which means that it will continue for the next decade, because it’s hard to believe that in the meantime the economies of Greece and Spain will reach the level of those in Germany and the Netherlands. All the more so that instead of drawing closer as a result of the so-called “repair programs”, they are moving increasingly apart from each other.

If the convergence of the euro area economies is not possible in the foreseeable future, the only way to reform them is through the controlled dismantling of the eurozone. In this regard, economists suggest many scenarios. The least radical is that debtors could temporarily suspend their membership in the euro area and return to their national currency. Moderating the eurozone division into two groups: one would concentrate the rich countries of the north and the other the poor countries of the south. Finally, the extreme option — the liquidation of the single currency and a return to national currencies.

With stubbornness deserving of a better cause, politicians ignore the rules governing economic reality, on which they try to cast a spell. In May, the Frankfurter Allgemeine Zeitung speculated on Chancellor Merkel’s “secret plan”. One of its elements is said to be the curing of the eurozone, consisting of the creation of a common budget and the appointment of a joint finance minister. This leak was a clear signal to Paris, which has long considered such a proposal to be a remedy for the disease plaguing European integration.

Let us repeat, if the theory of the optimal currency area is valid, then these plans will amount to nothing. The appointment of two institutions, the common budget and minister, will not change the real differences between European economies, and they will certainly not change the fundamental reason for eurozone dysfunctionality, which are the differences in the competitiveness of the individual economies. And it turns out that the French don’t have a burning desire for reforms that would improve the competitiveness thereof. On the contrary, President Macron, instead of lowering labor costs, stands at their guard, demanding that the so-called “posted employees” from the EU in France, earn the same as the French. Stirring tea does not make it sweeter — miracles in economics do not happen.

Since eurozone deconstruction is not on Europe’s political agenda today, for the foreseeable future, the euro area will be a major source of destabilization to integration processes in Europe, which will mean that Germany and France will not lead the EU together because they will be blaming one another for the crisis. The French will accuse Germany of excessive trade expansion, and Germany will accuse the French of reluctance to make deep reforms. There will be no German-French bedrock of unity. Conflict is inevitable, as France, leading the countries of the south, will expect the Germans not only to lend to the debtors, but also to share their wealth with them. This is part of the French plans for the “transfer union” and Eurobonds. Berlin will not agree, because then it would have to support its current eurozone partners, not at the annual 1% of GDP spending level, but many times higher. And the German welfare state won’t be able to afford it, having to soon face the consequences of the growing demographic crisis.

For the future government in Berlin, the crisis of Franco-German relations will be a fundamental problem. Just as, until recently, their skill in taking advantage of integration rules was one of the main reasons for German diplomatic success, so in the near future the integration crisis will weaken Berlin’s position, leading to conflict with Paris and other European capitals.

Hegemon on the rise

The current crisis of integration proves that Germany is not capable of leading Europe. They aren’t able to play the role of a hegemon, which is what the American economic historian Charles P. Kindleberger described as: a dominant power able to stabilize its international environment. A hegemon, or a leading power, cannot focus only on pursuing its own interests. Some of its resources have to be devoted to providing security to those states that they want to lead and thus provide them with a regional common good or global stability. This in turn results in an increase in its soft power, or recognition of leadership by partners. This was, according to Kindleberger, the basis for American politics after World War II.

American-German partnership in post-Cold War leadership was thus associated with double hegemony. Washington was supposed to fill the role of global hegemon, and Berlin, as an associated regional hegemon (junior hegemon).

Germany, however, has not taken on the main responsibility for fighting the causes of the current crisis in Europe, for example by carrying out a controlled deconstruction of the euro area or converting it to a transfer union, which would be equivalent to debt relief for the countries of southern Europe. They did not behave like a leader, but like other regional powers (France and Italy) and joined an opportunistic play for time that was consistent with their own short-term interests. Subsequently, the policy of savings imposed on partners led to record annual trade surpluses.

However, this was not the first time Berlin failed the regional leadership exam. After 1989, Germany played a leading role in Central and Eastern Europe (CEE). Their leadership was legitimized by becoming an advocate of the countries of the region on the road to membership in Euro-Atlantic institutions. It can be said that in the 1990s they took over the role of power-stabilizer in CEE.

However, in the middle of the first decade of the 21st century, after the successful enlargement of NATO and the EU, Berlin itself raised questions about its leadership by building a pipeline with Moscow, bypassing its Central European partners. Nord Stream serves the interests of Germany, which wants to be a continental gas hub. However, this is incompatible with the interests of Central European countries, because it maintains their dependence for energy security on Russia. Another example of their incapacity for leadership was the attempt to use EU institutions to force Central European states to accept migrants. This policy has caused those countries to react by developing various regional groupings (Visegrad Four, Three Seas Initiative), which are bound by opposition to the potential hegemon.

After the September elections, Germany will probably try to improve relations with CEE countries, primarily for two reasons. After the July visit of President Trump in Poland and his meeting with the Three Seas Initiative member states, the countries of the region felt more like subjects. Berlin will seek to draw closer to them, as they will need them in their political power games, if only to improve relations with Washington. It should not be forgotten that real EU reform will not be possible without the participation of Central European countries.

As a result of Brexit, the Germans lost their main ally in the EU, which had helped them block France’s statist plans and balance its influence in European power plays. Leading the so-called “mark bloc” (Germany, Austria, the Netherlands and Finland), they formed a more liberal-oriented grouping with the United Kingdom and opposed the Mediterranean bloc, led by France (alongside Italy, Spain, Greece and Portugal), which was more state-oriented. Today these two blocs have transformed into creditors and debtors. The current balance between them is based on the fact that in the EU Council they have about the same number of votes and a “blocking minority” (35%). After London’s departure from the EU, Germany and the “mark bloc” will represent only 25% of the EU population and will lose the ability to block Council decisions that are incompatible with their interests. The Mediterranean bloc will have 42%, thus dominating the financial and economic policies of the Union. This opens the way for a transfer union that will lead to a new major internal crisis in the EU.

Most Central European countries will not join the eurozone, nor is it in their interest to turn it into a transfer union. Therefore, together with other Central European countries, they can become a valuable partner. After Great Britain leaves the EU, Poland will represent 9% of the EU population, Hungary — 2%, the Czech Republic — 2%, and Slovakia — 1%. Thus, the V4 countries, along with Germany and the “mark bloc”, together will constitute the blocking minority on the Council.

Such a system would create a new constellation on the continent. Central European countries would no longer be regarded as poor provincial relatives. Rather, they would take an important step towards the political-economic center of the continent. And this would undoubtedly benefit Germany, which could count on them in case of a dispute with the countries of southern Europe.

 

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Over the next four years, Germany will face the task of redefining its power status. The future crisis of the European welfare state, which will be the result of a demographic catastrophe and a migration wave, will limit the resources with which Germany can build a leadership position in Europe. That is why they will create a balance of power, that is to build such alliances that will strengthen their position in international affairs, and they will find a partner in Central European countries. However, since no continental configuration by itself will provide stability in Eurasia, they will first of all need to return to a close alliance with the United States.

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