Does Berlin's Economic Dogmatism Risk Turning the EU into “A Big Germany”?     Print Email

The debate over the crisis in the euro and the eurozone has thrown up a counter-argument to the theme of blaming the crisis on lax fiscal management by Athens. True, the Greek authorities mislead other governments about their real debt problem. But a deeper explanation for the crisis may lie in a recent economic pattern in which Germany has managed to stifle its own domestic demand and thus keep down inflation at home while thriving on its exports to less productive countries – such as Greece. This argument leads a worrying conclusion about the future: there can be no effective long-run way of “reforming” the eurozone, with tighter enforcement on deficit ceilings, unless the German authorities agree to stimulate more domestic consumption to replace part of its export-led growth. The alternative? If Germany succeeds in simply pushing the weaker, southern European countries into smaller fiscal deficits, the result will be a eurozone with chronically weak internal demand and growth.

The result? According to the Financial Times’ respected Martin Wolf would be bleak. “Germany and other similar economies might find a way out through increased exports to emerging countries. [But] for its structurally weaker partners – especially those burdened by uncompetitive costs [like Greece and the other PIIGS] – the result would be years of stagnation, at best. Is this to be the vaunted ‘stability’?”

Put bluntly by an American commentator, “Germany’s idea of fiscal discipline is a deflationary vacuum that is desirable only for an export powerhouse with low consumption – in other words, Germany.” He cites Wolf’s conclusion that the result of German ambitions are “putting the eurozone, the world’s second largest economy, on its way to being a big Germany.”

It is now a widely debated question: Is Germany is revealing a paradigm shift away from its traditional reflex of putting European integration at the top of its political priorities? Is a new Germany suddenly ready to re-nationalize and even expand its Germanic vision for Europe? How far will Chancellor Angela Merkel go in clinging and seeking to impose German economic dogma? Spiegel notes that German chancellors’ approach in the past was to quietly and steadfastly pursue her interests in Brussels with the help of key partners or the European Commission. The ultimate goal was not to isolate Germany within Europe. ”Merkel is now the first chancellor to have abandoned this principle on an important issue. She has made it clear that there are German interests and European interests, and that they are not necessarily the same.”