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Germany feels the weight of history | Ilana Bet-El

Guardian Economics 26th June 2010

The eurozone crisis has put Germany under pressure. But it can't enjoy economic leadership without taking responsibility

Germany-bashing due to the euro crisis has become something of a vogue. The French have been at it for some time, and earlier this week, the US also sent out worried signals about German demands for austerity in the eurozone before growth was achieved. Then George Soros weighed in with a very strong speech attacking such German policy as a danger to the EU itself – a speech given in the Humboldt University in the heart of Berlin, no less. And if all this were not enough, then Helmut Schmidt, the 92-year-old former German chancellor, also gave an interview attacking current German foreign policy as having a tendency towards "Wilhelmine pomposity" – a clear reference to the misguided tendencies that led to the first world war.

Clearly feeling the pressure, and ahead of the G8 and G20 summits this weekend, the German finance minister, Wolfgang Schäuble, published a strong rebuttal of recent economic arguments in the FT. In the article, he insists both that German policy was based on sound economic principles, and that the "German government knows it has a responsibility to promote growth in Europe and the world". However, he also noted that Germany as a state, and German consumers particularly, have an "aversion to deficits and inflationary fears, which have their roots in German history in the past century" – and therein, effectively, lies the problem.

Both the criticism of Germany, and its strong defence, are partly about economics, but also about history and politics – and that is a potent mix, especially in Europe.

The first signs of the issue were evident in the negotiations on the Greek sovereign debt crisis, which dragged on from January to May this year. While France and other eurozone member states were in favour of shoring up the debt – and effectively bailing Greece out – Germany was adamantly against it. Quite logically, Germany stated that it was anywhere from unfair to impossible to expect the prudent German taxpayers to fund the debts of the profligate Greeks – which, given that Germany has the largest economy in Europe, would be largely the case. No one really disagreed with this analysis, so much as with its corollary: given the structure of the eurozone, which bound all members together, there were only two solutions outside of a bailout: either Greece or Germany leaves the eurozone. Since the political consequences of both options were too horrific to contemplate, Germany eventually agreed to the bailout – but the lapsed time had jacked up the price to the stunning total of €750bn, coupled with very stringent German demands on the amassing and distribution of the funds. These demands – which are the core of the austerity moves attacked by France, the US and George Soros – are not only basic to German economic philosophy, but were also intended to signal that Germany had moved away from being the indulgent EU paymaster. As the German interior minister, Thomas de Maiziere, then warned: "Our European friends have to come to terms with the fact that Germany is now defending its national interests in the EU, just as France or Britain have always done."

This is a bold statement, which is apparently forward-looking – yet also suggests that, in the past, Germany shut up and paid up in order to repent for its sins, and that, in so doing, it denied its own national interests. This is a deceptive interpretation: over the years, Germany did pay massive amounts, partly because it has always been the largest economy and undoubtedly also for penance; but it also bought off those who feared its reunification. At the time, all these reasons were seen, and still remain, primarily German national interests, such as the common market, international respectability and the recreation of the largest and richest state in Europe.

Then there is the matter of the euro: in the current German reading, it is the rest of the eurozone that has benefitted from membership, while Germany "sacrificed" its strong Deutschmark. At the same time, pure national discipline has landed Germany with a massive trade surplus of €134bn, while its eurozone colleagues shirked the discipline and ended up with massive deficits, leaving poor Germany to pick up the pieces.

Maybe. But it is also worth noting that more than 85% of the surplus – some €115bn – come from trade in the EU. As EU Commission President Manuel Barroso, a man not noted for his boldness, put it: "Germany was until now a big winner from the euro. I find that more politicians in Germany should make that clear."

The euro crisis, like the larger global financial crisis, has exposed massive fault lines not only in economic structures, but also in political and cultural ones. For Germany, this may be perceived as a struggle between a modern vision of itself, independent from its troubled history and the restrictions of the EU and the eurozone, and a vision perennially blighted by the inflationary and political horrors of the post first world war era.

An internal visionary struggle is an honourable pursuit, but Germany cannot expect the rest of the world, and especially not its EU colleagues, to accept its modern vision that diminishes, and potentially nullifies, history – but then fall back on historical justifications when it feels itself trapped.

History is not a game: playing with it, especially in Europe, bodes extremely ill.

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