Merkel is our only hope

Mehdi Hasan’s article in last week’s New Statesman made headlines across the German media – but for all the wrong reasons. His statement that Angela Merkel is “the most dangerous German leader since Hitler” eclipsed a necessary debate about Merkel’s economics with a pointless one about Britain’s inability to discuss Germany without invoking Hitler or the Second World War. By missing the target, his story failed to draw attention to how counterproductive Merkel’s technocratic reforms have been, even understood on their own terms.

Last summer, Merkel looked over the precipice of euro collapse and did not like what she saw: she resolved to do everything necessary to save the euro. Buther government’s attempt to minimise the costs of bailing out crisis countries has put nations such as Greece under deflationary pressure and sent borrowing costs spiralling. Her attempt to enforce rules regardless of the effect on the real economy has led to revolt in deficit countries. And her attempt to impose decisive action through a Franco-German duo ended up creating more paralysis by stimulating populism. Hasan’s column did nothing to encourage a sensible debate about these approaches, which individually have their own logic but collectively make the European project seem stingy, rigid and oppressive. Although he is right about the limits of austerity, Hasan is part of a long British tradition – from Chamberlain to Cameron – of misreading Germany’s approaches to the past, present and future.

The Fawlty Towers approach to history misunderstands the importance of the past in the German imagination. Much has been made of its pathological fear of inflation from the 1920s, but guilt about the 1930s and fears of a breakdown of European order still make the German elite responsive to arguments about what is good for Europe.

There is also a third memory that is less discussed: a sense of betrayal over European political union from the 1990s. In 1994, two prominent German politicians – Wolfgang Schäuble and Karl Lamers – offered the then French prime minister, Édouard Balladur, the prospect of joining them in the hard core of a political union as a quid pro quo for sacrificing the Deutschmark to the European Monetary Union. Balladur did not even have the grace to reply. The backdrop to today’s debate about Eurobonds is that the German political elite, led by Schäuble, who has risen to the post of finance minister, fear that the French will once again take them for a ride.

Many British commentators are equally wrong on the German approach to the present, missing that Merkel is slowly preparing the ground for a European grand bargain. Speaking privately, many in her government now accept the opposition Social Democratic Party’s claims that austerity without growth is a chimera and that part of the price for allowing Spain and Italy to return to growth must be socialising their debt (Merkel’s council of economic advisers has even published a blueprint for a “debt redemption fund”).

Berlin is reluctant to give other countries its credit card without working out some means of control over their spending. Germans explain that they cannot bankroll France if it insists on maintaining public spending at 56 per cent of GDP and a retirement age of 60 (Germany’s public spending is 47.5 per cent and its retirement age is 67). Berlin wants to change European treaties and institutions to make these constraints binding (including an increase in the power of the European Parliament over national budgets and holding direct elections forthe commission president).

Future shock

The best way to get Germany to abandon its counterproductive reforms is to talk about a compelling European future, rather than dwelling on the past. The question Germans are posing is whether France is ready for political union in exchange for fiscal solidarity. Critics are right that it is no good for the German government to present political union as a prerequisite for banking and fiscal union but they are wrong to dismiss the idea as a red herring.

Today’s Europe is becoming an “apolitical union” in which elections allow citizens to change governments but not policies and where technocrats rule. The worry is that the German vision will take economic policy even further out of the political realm – but some kind of democratic legitimation will need to go hand in hand with the socialisation of risk, both to ensure that the EU has the democratic foundations to withstand financial turmoil and to meet the requirements of the German constitutional court.

My view is that the EU will be more legitimate if it makes national governments play a more visible role and increases their accountability rather than turning the European Commission into a de facto government. One idea would be to set up a council of deputy prime ministers that could meet weekly in Brussels and be held accountable by a second chamber of national parliamentarians that sits alongside the European Parliament.

Germany does not want to move until the last possible moment, because it wants to take its time to work out how to introduce controls and it fears that debtor countries will return to their bad habits if Germany socialises debt too quickly. But this kind of brinkmanship is becoming too dangerous. A perfect storm is brewing and we are fast approaching the moment when even Merkel won’t be able to stop it.

Though libraries will be filled with the mistakes of her European policy, Europe is blessed that it is a German leader who is in the hot seat. If France were the indispensable nation, I doubt that it would overcome its obsession with sovereignty or its national pride. Spain and Italy both have traditions of pro-Europeanism but do they have the resources and political credibility to bring the markets and other countries with them? And think for a moment how the picture would look if David Cameron were in Merkel’s position and had her power. The world may be terrified of the consequences of German policy, but for reasons of history, geography and politics, Germany is still the only country we can imagine overcoming its short-term interests to save Europe from its current crisis.

Mark Leonard is the director of the European Council on Foreign Relations and the author (with Jan Zielonka) of “A Europe of Incentives: How to Regain the Trust of Citizens and Markets”