Merkel’s Toxic Legacy

Giles Merritt | 30 October 2018

German Flag, fdecomite, CC-BY-2.0

Unflappable to the point of seeming stolid, Angela Merkel has for 13 years been a fixed point in a Europe of unnerving flux. Her political obituaries are therefore verging on the euphoric, even though her time as Germany’s Chancellor is far from over.

The eulogies are wrong, of course. When Merkel’s years in office come to be seen in a longer perspective, the judgement of history will probably be far less starry-eyed.

Her inability to persuade her fellow-countrymen of their own best interests will stand as an enduring reproach. Germany, since her arrival in Berlin’s chancellery in 2005, has been sowing the seeds of the eurozone’s eventual break-up and possibly the collapse of the EU in its present form.

The writing on the wall first appeared with the sovereign debt crisis that beset the eurozone in 2009 in the wake of the global financial crisis the year before. Fears that Greece would default on its debts, perhaps to be followed by other weaker eurozone countries like Italy, Ireland, Portugal and Spain, were met by hardline German insistence on imposing tough bail-out terms.

It is possible to argue about the rights and wrongs of Germany’s handling of that long-running crisis. Much less open to argument is the fact that Berlin learnt nothing from it. The country’s politicians continued to bow to popular rejection of what was labelled a “transfer union” in which German cash would bolster economic growth in southern Europe.

This will be Merkel’s legacy, for at that time she was the undisputed leader in her own country, and in the EU too. But allowing the German economy to outstrip most of Europe was dangerously short-sighted.

Since 2010, its surpluses have snowballed. Germany has a trade surplus that even its industrialists call “toxic” as it is due to top €260 billion this year, and a federal budget surplus that was revised to €60 billion-plus because it’s a third greater than originally forecast.

German public opinion welcomes these successes, but eventually will regret them. The widening North-South gap in the EU and the growing strains within the eurozone are putting the single currency at risk. Where the euro’s collapse might leave Germany is anyone’s guess, but history strongly suggests that splendid isolation would not be an advantage.

That Germany’s place is at the heart of a pan-European political and economic structure has been successive governments’ core thinking since the end of World War Two. Angela Merkel will therefore be liable sooner or later to accusations of shirking her responsibility to uphold this doctrine.

Merkel is widely thought to be an astute tactician, so it remains to be seen whether her decision to stand down in December as head of the CDU party while remaining chancellor until 2021 will play well. What this extended period as a lame duck might offer, however, is an opportunity to generate debate within Germany on the merits of its fiscal rectitude.

Ms. Merkel famously once described herself as a ‘thrifty Swabian housewife’ – although she doesn’t in fact hail from southern Germany – who exemplifies the virtues of caution and hard work. It sounded good, and went down well with the voters. Now, though, she should perform a volte face and use her remaining time to explain to German opinion that spreading the country’s wealth to other parts of Europe would stave off serious tensions and pay dividends to Germany too.

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Friends of Europe

Giles Merritt is founder and Chairman of the think tank Friends of Europe and its policy journal, Europe’s World. He was foreign correspondent for the Financial Times and is Advisory Board member of the Scottish Centre on European Relations.