Angela Merkel’s summer could hardly have started better:
the world cup win; the eurozone crisis contained; Germany’s federal budget
heading into surplus; her personal popularity at unassailable highs.
Six weeks later, as Europe returns from its holiday break, the scene is dramatically changed. Berlin is locked in a cold war with Washington over America’s spying; the transatlantic trade talks, on which the best hope for a revived US-Europe partnership depend, are in trouble; the Ukraine crisis boils on; and at home the Social Democrats, Merkel’s coalition partners, are putting the Christian Democrats under serious pressure.
But the really big news of the summer is the eurozone. Italy and France are sliding back into recession, while Germany’s own economy is rapidly slowing.
Of course, the geopolitical change of weather can’t be blamed on Berlin. Merkel isn’t responsible for the obsessive activities of America’s spies any more than she can take credit for performances on the football pitch.
In Ukraine, Germany might have played a clarifying role last year by spelling out that Ukraine has almost zero chance of ever becoming a full member of the EU.
But no one likes to be a bringer of bad news. And the extent to which Vladimir Putin would exploit the crisis in Kiev took everyone by surprise.
And Germany’s position at the heart of the world trading system is recognized by the leading actor of the 21st century, China.
Beyond the era of lop-sided American hegemony, Germany will have a prominent place in a new, China-centered phase of true globalisation.
But this vision harbours its own risks. Is China headed for the mother of all real estate busts? And can Berlin square the circle of maintaining special relationships with both Beijing and Washington?
Given the export-gearing of the German economy, these are inescapable questions for the future.
What has faced the German policy-making elite this summer is the stark reality that Europe, the zone of world affairs where their responsibility is undeniable, is not fixed, and that their strategy for fixing it is not working.
The crisis has left Europe with three distinct problems: shaky public finances, crippling long-term unemployment, and limping banks.
This summer’s news suggests they are coalescing to form a Japanese-style vicious circle.
The bond market turmoil was fixed by a dramatic intervention by the European Central Bank (ECB) in summer 2012. Interests rates for the most vulnerable economies – Portugal, Italy, Ireland, Greece, Spain – are down to historic lows; too low, a pessimist might argue.
But the price that Germany exacted for ECB president Mario Draghi’s rescue was exorbitant: Europe-wide acceptance of a punishing austerity agenda.
Even in Germany itself, where the federal government has reached fiscal balance, the pressure is now on its states, the Länder, which are struggling to balance their books by 2018.
Austerity proponents such as finance minister Wolfgang Schäuble insist that squeezing public expenditure will free up private investment. But Europe’s banks, with Deutsche Bank very much in the lead, remain in a state of shell shock.
Whereas the US and the UK have moved rapidly to put in place new, confidence-boosting regulation, Germany has been dragging its feet over a European banking union.
As the summer ends, the sense of impasse is inescapable.
Germany cannot truly prosper without a growing Europe. Europe cannot prosper without exporting to a buoyant German economy. But with the Christian Democrats in charge of German fiscal policy, is there any hope of change?
A sign of the times was the appeal issued on 30 July by Jens Weidmann, the ultra-austerian head of the Bundesbank.
In a rare agreement with the ECB he called on Germany’s trade unions to push for 3% wage rises.
This is a welcome sign that Germany may be rethinking the unilateral pay freeze that has put such pressure on the balance of competitiveness within the eurozone in the last decade.
But a conservative central banker calling upon social democratic trade unionist to engineer the reflationary stimulus that he and his friends in Berlin are so doggedly set against?
What is left of Schäuble and Merkel’s policy when it comes to this?
Six weeks later, as Europe returns from its holiday break, the scene is dramatically changed. Berlin is locked in a cold war with Washington over America’s spying; the transatlantic trade talks, on which the best hope for a revived US-Europe partnership depend, are in trouble; the Ukraine crisis boils on; and at home the Social Democrats, Merkel’s coalition partners, are putting the Christian Democrats under serious pressure.
But the really big news of the summer is the eurozone. Italy and France are sliding back into recession, while Germany’s own economy is rapidly slowing.
Of course, the geopolitical change of weather can’t be blamed on Berlin. Merkel isn’t responsible for the obsessive activities of America’s spies any more than she can take credit for performances on the football pitch.
In Ukraine, Germany might have played a clarifying role last year by spelling out that Ukraine has almost zero chance of ever becoming a full member of the EU.
But no one likes to be a bringer of bad news. And the extent to which Vladimir Putin would exploit the crisis in Kiev took everyone by surprise.
And Germany’s position at the heart of the world trading system is recognized by the leading actor of the 21st century, China.
Beyond the era of lop-sided American hegemony, Germany will have a prominent place in a new, China-centered phase of true globalisation.
But this vision harbours its own risks. Is China headed for the mother of all real estate busts? And can Berlin square the circle of maintaining special relationships with both Beijing and Washington?
Given the export-gearing of the German economy, these are inescapable questions for the future.
What has faced the German policy-making elite this summer is the stark reality that Europe, the zone of world affairs where their responsibility is undeniable, is not fixed, and that their strategy for fixing it is not working.
The crisis has left Europe with three distinct problems: shaky public finances, crippling long-term unemployment, and limping banks.
This summer’s news suggests they are coalescing to form a Japanese-style vicious circle.
The bond market turmoil was fixed by a dramatic intervention by the European Central Bank (ECB) in summer 2012. Interests rates for the most vulnerable economies – Portugal, Italy, Ireland, Greece, Spain – are down to historic lows; too low, a pessimist might argue.
But the price that Germany exacted for ECB president Mario Draghi’s rescue was exorbitant: Europe-wide acceptance of a punishing austerity agenda.
Even in Germany itself, where the federal government has reached fiscal balance, the pressure is now on its states, the Länder, which are struggling to balance their books by 2018.
Austerity proponents such as finance minister Wolfgang Schäuble insist that squeezing public expenditure will free up private investment. But Europe’s banks, with Deutsche Bank very much in the lead, remain in a state of shell shock.
Whereas the US and the UK have moved rapidly to put in place new, confidence-boosting regulation, Germany has been dragging its feet over a European banking union.
As the summer ends, the sense of impasse is inescapable.
Germany cannot truly prosper without a growing Europe. Europe cannot prosper without exporting to a buoyant German economy. But with the Christian Democrats in charge of German fiscal policy, is there any hope of change?
A sign of the times was the appeal issued on 30 July by Jens Weidmann, the ultra-austerian head of the Bundesbank.
In a rare agreement with the ECB he called on Germany’s trade unions to push for 3% wage rises.
This is a welcome sign that Germany may be rethinking the unilateral pay freeze that has put such pressure on the balance of competitiveness within the eurozone in the last decade.
But a conservative central banker calling upon social democratic trade unionist to engineer the reflationary stimulus that he and his friends in Berlin are so doggedly set against?
What is left of Schäuble and Merkel’s policy when it comes to this?
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