The Eurozone & Germany, Crisis & Opportunity

Economic
Sunday, June 19, 2011

The global economic crisis called into question almost every aspect of the global financial system, but as many market structures stabilise several years after the epicentre of the crisis, the question of the validity and longevity of the Eurozone remains unanswered.One of the world’s most powerful nations sits patiently at the centre of the Eurozone, as both the chief architect and financier of the single currency. For Germany the question presented goes beyond the survival of the Eurozone, and brings challenge to the strategy that has defined German foreign policy for the last two decades.Germany is the result of a very modern kind of statecraft. A power vocal by its influence on the finance and regulation of Europe, muscular on issues of global trade and manufacturing, but silent, by comparison, as a unilateral actor on the world stage. This contrast was underlined by the centrality of Germany in managing the European financial crisis, and its marked absence from the international conversation on the increasingly unstable Middle East, now, and throughout the last decade.If one had to characterise Germany as a global power from the Libya-crisis alone, there are indeed analogies in German behaviour to non-Western powers like Russia, Brazil, India or China, which all abstained from UN resolution 1973. Like these powers, Germany is weary of military interventions.Germany knows that its power will continue to derive from soft institutional structures and economic clout, rather than a robust hard powered foreign policy. That economic clout however, is inexorably fused to the economic structure of the EU, around which Germany has built its foreign policy goals.Whilst the government seems to be incredibly attentive to internal public opinion, and to the German public the thought of underwriting Europe’s debt crisis is unappealing, to its political elite the thought of the collapse of the European project is unthinkable.Chancellor Merkel has been swift to acknowledge public concern, reassuring a restless nation that "every country is responsible for its own debts", and that "there will be no transfer union under my legislature". Yet any acknowledgement of public concern by senior government officials is delivered in unison with a robust and sobering defence of the ongoing European project. “We do not need to love our currency, we need to evaluate how much it helps us, and the euro does so in every aspect. We should remind ourselves of one thing: we face an increasingly intensive competition with vast countries like China, India or Brazil. In order to compete, Germany needs allies. The euro creates such allies. A strong and efficient Euro-zone is the best protection for our welfare state and our jobs. It is also thanks to the Euro that the number of Germans in employment is higher today than before the crisis."German government wilfully placating, but effectively ignoring public opinion in order to further the cause of the Eurozone, is less an anomaly and more of a trait of the legislative record. In 1999 the German public were antipathetic to surrender the Deutschmark when it was among the world’s strongest reserve currencies and the backbone of Frankfurt’s bid as a global financial centre, and yet it effectively moved through the Reichstag by an executive act, absent a much called for public referendum.Senior German policy makers have in fact been surprisingly bellicose in the face of what many economic commentators deem to be the death throes of the Eurozone. Whilst this can be easily dismissed as the necessarily brave face of a state in crisis, its intelligence runs to a deeper understanding of the development of the EU.Historically the Union itself was born of great crisis, as many of its subsequent great advancements. It is undoubtedly in this vein that both the current and former German finance ministers across the political spectrum have commented that the Eurozone crisis offers the greatest opportunity yet to deepen fiscal unity and central control of the European economy in Brussels. Wolfgang Schäuble, Germany’s current Minister of Finance commented at the recent Munich Security Conference: “The deeper the crisis, the better the chance for getting solutions!”The challenge and interest presented to the future of a German foreign policy 50 years in the making therefore could hardly be more dichotomous.  If the Eurozone fails, Germany will need to again restructure its economy and re-define itself on the world stage. If it weathers the storm, then Germany sits at the heart of one of the most powerful economic bodies in the world, ever strengthened by its continued resilience.Those in the financial sector that are waiting for the inevitable collapse of the Eurozone to end the enduring echoes of the global recession, may yet have to wait out the dogged resolve of Europe’s greatest power.