Many myths have accrued around the question of Germany’s European policy, myths that do not make it easier to fully grasp the gravity of today’s situation. At least two of those beg for explanation.
The first myth says that Germany – the greatest beneficiary of the single currency and Europe’s largest economy – has renounced its solidarity with the rest of the continent and turned its back on it. In reality, without Germany’s support the eurozone would have crashed long ago. Over the last three years, Berlin has offered over 200 billion euros in loans and credit guarantees to troubled eurozone member states.
The second myth holds that – despite the crisis – Germany has it so good today that the country has lost its interest in Europe and instead looks for partners in countries like China or Brazil. Granted, it was trade with those countries that drove Germany’s growth in the first quarter of 2012 despite the deteriorating market conditions.

But German exports remain reliant on the eurozone, which accounts for 40 percent of them (while just 6 percent for China). The euro’s collapse and the social and political upheaval that would likely follow in at least some of the eurozone economies would affect Germany much more than it would many other countries.

End of symbiosis

The sources of Europe’s German problem – or Germany’s European problem – lie elsewhere and are more fundamental. Firstly, the current crisis has hit Germany hard. Not in economic terms, but in political and moral ones. Far from heralding the onset of a “German Europe”, it actually means its end. The common currency system was based on the German model, with the European Central Bank as a copy of the Bundesbank.
The crash of this “Maastricht Europe” effectively undermines two assumptions crucial for Germany policy – that German solutions are best for Europe and that the German economic model thrives in symbiosis with European integration.
Before the crisis began, both made good sense. Germany supported ever closer integration, serving as the driving engine behind the formation of the common market and the single currency – and all that served Europe. But it was also a prerequisite of Germany’s postwar prosperity, which was based on rebuilding the country’s international reputation and developing an export-oriented economy. In the last couple of decades Germany got used to thinking that what was good for Germany was also good for Europe. Today this symbiosis is over.

Remedy for crisis

In order to save Europe, the Germans need not only to reach more deeply into their pockets, but also to abandon their concepts regarding Europe and the economy, which they thought guaranteed Germany’s success in the postwar decades. This means a significant political and intellectual challenge.
The unshakable principle that every country is responsible for its own debts has now been thrown out. The ECB has played a key role in saving several countries from default, contravening the German dogma that guarding monetary stability is the institution’s sole function.
It is a paradox that Germany needs to reinvent itself at a time when its current model has been more successful than ever, the economy is booming and unemployment has never been lower. Changing tack at such a moment requires a great deal of courage and determination, which Ms Merkel lacks.

The giant’s weakness

The second, seldom acknowledged, reason for Germany’s European dilemma today has to do with its own socio-economic situation. The benefits of Germany’s economic success of the last decade have been distributed very unevenly. Economic inequality has grown more rapidly than elsewhere in the industrialised world. During the boom, Germany’s export competitiveness stemmed in large part precisely from relatively labour costs, which means low wages.
True, those who were previously unemployed benefited from the creation of new jobs. But the quality of most of those jobs is a far cry from the cushy terms of “Rhine capitalism”. Germany has the highest proportion of “junk” job contracts in Europe.
This is accompanied by very high debts carried by many municipalities, which, forced to introduce drastic austerity measures, are closing down public utilities, swimming pools, culture and welfare centres. Paradoxically, the erosion of the German social model has accelerated since the launch of the euro and the resulting economic boom.
While Europe perceives Germany as an economic powerhouse that has dominated the whole continent, Germans themselves – despite the prosperity – are witnessing a crisis of the welfare-state and social-advance model they have become used to after the war.

Deficit of democracy

Germany’s third problem with Europe concerns democracy. Refusing to accept eurobonds or other more radical solutions, the Germans say that such transfer of prerogatives to the EU would require amending their constitution. The Constitutional Court of Karlsruhe ruled so in its time, defining the limits of possible integration.
The EU does have a real problem with democracy today. One of its aspects is the technocracy which means that, as Ivan Krastev points out in the most recent issue of Przegląd Polityczny ("Political Review"), in Italy or Greece “voters can change governments but not their economic policy”.
The other face of this issue is the lack of political willingness on the part of societies (not only the German one) to delegate more powers to the EU. Perhaps Europe can only be saved by a big step towards a political union, but this is precisely what the public opinion in the member states opposes.
The American economist Raghuran Rajan wrote some time ago that politicians are unable to respond to dangers of unknown scale. This is a good explanation of Ms Merkel’s stance. Until now, German policy has focused on limiting the damage and trying to preserve as much of “German Europe” as possible.
In recent days, Chancellor Merkel mentioned the need for establishing a political union, a prospect the EU leaders will discuss during the summit at the end of this month. It is not Berlin but Paris that may prove the greatest obstacle in the process. The dilemma “the EU’s collapse or a political union” has become very real today. Perhaps Ms Merkel’s greatest fault has been her inability in recent years to prepare the public for either of these scenarios.