In defence of Germany

Angry at Angie: Merkel has attacked for a slow and confused reaction to the Greek crisis. Photograph: CDU

It is open season for Berlin-bashing. If there is one thing that unites French cultural supremacists and euro-loathing little Englanders it is their common passion for cheap snipes at Germany.

The country is like a larger version of Heidegger’s phenomenology: it is either incomprehensible or, if you actually understand it, indefensible. What Winston Churchill said of Russia is also true of Germany: it is a riddle, wrapped in a mystery, inside an enigma.

And Germany, unexpectedly, is now committing heresy. Its dissent from European solidarity and integration — embodied by its Bundesbank-inherited fear of tampering with the monetary base, as well as its passion for rules — now threatens the European project with an existential crisis.

A typical lament in Brussels today is that Germany has given up on European integration. This view is more than a comment on Germans’ intolerance of Greek profligacy. Some are even voicing the incredibly silly notion that Germany might be actively considering leaving the euro.

It is true that Europe no longer serves as the focal point for those in Germany who look outwards to find new markets, new ideas and new ways to address societal problems. Germany has globalised. If you bumped into a European business man or woman ten years ago in a foreign place, you could be pretty sure he or she was a Brit or Frenchmen. Germans were parochial, at best regional with a flair for Europe, but with little appetite for the world. This is no longer true. During a stay in Beijing last summer, I came across so many Germans it sometimes felt as if I were in Stuttgart or Munich.

This is annoying to some, especially those who cannot help feeling that Germans should still look at Europe as a way to “cleanse themselves of genocide and apply for readmission to the human race”, as the notorious Sir Humphrey Appleby explained the German view of the European Community in the British TV series Yes Minister. If not for other reasons, this feeling is expedient to the notion that Germany is needed to bankroll many of the costly artefacts of European integration, like agricultural and cohesion subsidies.

But it is a notion that should have been put to sleep many years ago. Today, Germany cannot play the role it did in the European Community until the 1990s. With a Union of 27 members, no single country can act as leader – or lead banker. Put differently, the diminishing role of Germany in Europe illustrates the success of European integration.

Critics of German macroeconomic policies also herald unfair views of German economic policy. As the Princeton historian Harold James wrote in the Financial Times recently, Germany has become the whipping boy of Europe. Shortly before the G20 summit in London last spring, Larry Summers, the chief economic aide to US President Barack Obama, lambasted Germany for not increasing its fiscal stimulus package (and deficit). At the summit, Obama was astonishingly vexed with German Chancellor Angela Merkel’s old Bundesbank mentality and her fears of recurring Weimar hyperinflation rates (which peaked at 182 billion percent in 1923). Shortly before Summers’ snipe, however, Germany had to cancel a bond issuance as the interest demanded was too high. Not even a big economy like Germany could take up new debt without paying such high interest that bigger problems would have ensued.

Earlier this year the French finance minister, Christine Lagarde, echoed another usual complaint about Germany: its export sector is too successful and a peril to the internal balance of the eurozone. Of course, the complaint is dressed up in more fashionable terms, but the essence is a silly critique of German trade prowess. Another version of this line of argument is that Germany has benefited too much in the eurozone from a depressed exchange rate that boosted German exports (at the expense of other eurozone countries). This view, too, is unconvincing. How come German exports grew much faster when the euro appreciated in the years leading up to the crisis than in the preceding period, when the euro was weaker?

Most recently, Merkel has been in the firing line for acting too slowly or confusingly in response to the Greek crisis. I have some sympathy for this view. I disagree on the issue of speed: Greece was not worth bailing out until it had demonstrated a willingness to act with ruthless determination to cut spending and deficits, which happened around the time the bailout package was agreed. It needed to stew in its own juice for a while. Subsequent market turmoil has also demonstrated that it is the debt level rather than the speed of the rescue packages that is causing worries.

I also disagree with the presumption that Greece should have been rescued by its EU partners; Greece was a job for the IMF. The eurozone-oriented bailout of the country has created an entirely new set of problems to which it is hard to see any realistic solution. To avoid becoming a transfer union, the eurozone must have stricter enforcement of deficits and debts, but no country seems willing to accept others trespassing on its fiscal sovereignty. The German government has to take its fair share of the blame. It acted confusingly, flip-flopped on IMF participation, and went jittery as soon as others disapproved of its decisions.

The German economy is no fairytale, and German economic policy is not superbly tailored. Recent decisions by Berlin to unilaterally ban naked short-selling of some commercial and sovereign paper prove its ample capacity for irrational behaviour. But none of this can be traced back to a Bundesbank mentality or a monetary management philosophy that chose rules-based rather than discretionary approaches. It is rather the opposite. Germany did not stick to its guns. And now it is being punished for it.