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29 March 2023

Germany has taken over Britain’s role as leader of the EU’s awkward squad

Olaf Scholz’s insistence on reopening the debate on fuel-driven cars was Cameron-esque in its pettiness and its short-sightedness.

By Wolfgang Münchau

What is often forgotten in the UK debate about Europe today is how difficult the relationship was while it lasted. In the early 1980s, Margaret Thatcher derailed consecutive European summits with her incessant demands to get her money back. An exhausted group of leaders finally caved in on the UK budget rebate in May 1985. It was a victory for the UK, but it came at a political cost that was underestimated at the time. Thatcher was left with no allies in Brussels, and that isolation would inform her European politics. In 2011, David Cameron vetoed an EU treaty change to give the eurozone a formal identity inside the EU. By the time of the Brexit referendum in 2016, the UK had become a semi-detached member with opt-outs of varying degrees from the single currency, the Schengen Agreement on passport-free travel, the charter of fundamental rights, and home affairs.

The most interesting development in the EU since Brexit is that Germany has taken over from where the UK left off – as the unreliable leader of the awkward squad. Germany has always put domestic industrial interests ahead of everything, whether in regard to Russian gas or Chinese trade policies. But it is getting worse.

[See also: Like zombies, eurozone states are lurching towards their next financial emergency]

Most recently, Chancellor Olaf Scholz had his Thatcher-rebate moment, when he derailed an entire European Council in order to defend his government’s decision to reopen the 2035 deadline for the phasing out of fuel-driven cars. The EU had already agreed on this date. Ministers and the European Parliament have prepared concrete legislation. At the summit, other EU leaders were furious, including those who normally align with Germany on most things. The Netherlands, Belgium, Luxembourg, Latvia and Finland all criticised Scholz’s car crash.

And, like Thatcher in 1985, Scholz achieved a pyrrhic victory.

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What had happened was the smallest member of his domestic governing coalition, the libertarian FDP, wanted an exception from the 2035 phase-out for cars powered by electrofuels. Such “e-fuels” are made from carbon dioxide, captured from industrial processes, and hydrogen from renewable energy sources.

The EU’s previous agreement had been for all ordinary cars to switch to electric power by the deadline. E-fuels would be reserved for modes of transport that need them, such as lorries, ships and planes. From what we know about the pipeline of planned investments in e-fuel plants, there will hardly be enough for lorries, let alone for cars. Such fuels are very expensive to produce.

One of the few German car companies betting on e-fuels is Porsche – whose clients will, presumably, have enough money to purchase what would ultimately be a super-expensive fuel. Most other car companies have announced they will be switching to electric cars. It also happens that Christian Lindner, the chairman of the FDP and Germany’s finance minister, and Oliver Blume, the chief executive of Porsche, are close. Lindner is the only member of the German government who drives a Porsche. You could say that a Porsche crashed into the Europa building in Brussels– the venue where EU leaders meet.

[See also: If the EU could speak, what would it say?]

It is not hard to conclude that Scholz allowed a cynical lobbying effort by one of his senior ministers to hijack an entire meeting of EU leaders in defence of an idea that will soon probably be forgotten. The European Commission and Germany ended up agreeing on a formula compromise about this wretched e-fuel business, but the legal and commercial obstacles are formidable.

The Porsche exemption is not the big issue, however. Much more important is the political damage this whole episode has caused. Through a series of erratic policies, including its persistent support for the Russian Nord Stream 2 pipeline in the Baltic Sea, Germany has become increasingly isolated at EU level. Scholz has now set a dangerous precedent – that it is acceptable for a large member state to reopen deals that have been agreed.

We should remember this is exactly what Thatcher did with the EU budget – an issue others thought was settled. Group dynamics play a big role at the European Council, an institution that thrives on unwritten rules. Viktor Orbán, the Hungarian prime minister, did not say a word during the meeting, but his takeaway will surely be that he can do this too. Giorgia Meloni, the Italian populist prime minister, would not have dared to act in such a way – but if Germany can do it, anybody can.

Countries have vital national interests. But saving Porsche is not in the vital interest of Germany, however you define it. In the grand scheme of things, the British rebate was not nearly as petty. In 2014, it amounted to €6.1bn. Cameron’s 2011 veto, by contrast, fell into the petty category. He objected to proposed changes in financial services legislation that would have put the City of London at a potential disadvantage. The irony is that Cameron’s isolation, which contributed to the Brexit referendum, put the City at a much bigger disadvantage. In its European discourse, Germany is on a similar path as the UK was ten or 20 years ago. But there is one big difference. The UK’s presence was not critical to the EU’s survival. It is harder to think of an EU without Germany. As fiscal conditions get tighter, I would not be surprised if one day Olaf Scholz were to go to Brussels with a demand to get his money back.

[See also: Today’s global economy may look like that of the 1970s, but the crises we face are worse]

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This article appears in the 29 Mar 2023 issue of the New Statesman, Easter Special