Europe's reluctant hegemon

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    IT IS NOT often that a single country dominates the nal of EuropesChampions League, but on May 25th more than 360m people around theworld watched Bayern Munich score in the 89th minute to beat BorussiaDortmund by two goals to one at Londons Wembley Stadium. The sym-bolism was powerful. For the rst time in its 58-year history, the nal ofEuropes most important football contest was a wholly German aair.

    From the football pitch to politics to the economy, Germany has be-come Europes most powerfulcountry. Described by this news-paper as the sick man of Europein 1999, Germany now appears tohave the continents strongest aswell as its biggest economy. It ac-counts for a fth of the EuropeanUnions output and a quarter ofits exports. From Volkswagen toSAP, Germanys big companiesare world-renowned. Manysmaller German rms are globalchampions in niche markets suchas tunnel-boring machines andindustrial cleaners.

    Germanys jobless rate, at5.4% (using standardised OECDstatistics), is less than half Eu-ropes average. Youth unemploy-ment, a scourge throughoutmuch of the rest of the continent,is at a 20-year low in Germany.The countrys budget is balanced,government debt is falling andlong-term bond yields are thelowest in Europe. It is the largestcreditor country in the euro zone,and as chief paymaster it has the

    biggest clout in determining the single currencys future. The weakness of other heavyweights has added to Germanys heft.

    Britain, outside the euro and distracted by a domestic debate about its EUmembership, has lost inuence. The Franco-German tandem at the coreof post-war European integration has become lopsided. Relations be-tween Berlin and Paris are unusually poor, with some French politiciansdecrying the selsh intransigence in the euro crisis of Germanys chan-cellor, Angela Merkel. The economic gap between Germany and Franceis wider than it has ever been. Frances economy is stagnant, statist anduncompetitive and urgently needs reform.

    As a result, power within Europe has shifted sharply towards Ber-lin. Mrs Merkel is widely seen as the continents most important politi-cian. In Beijing or Washington, DC, the question: Where is Europe go-ing? has become synonymous with: What do the Germans want?

    Bureaucrats in Brussels talk ruefully about Berlin becoming the cap-ital of Europe. When the German position changes on an issue, the ka-leidoscope shifts as other countries line up behind them, says one o-cial. Thats unprecedented in the history of the EU.

    German predominance is not all-encompassing. In foreign aairsand military matters, for instance, France and Britain still play a much

    Europes reluctant hegemon

    Germany, now the dominant country in Europe, needs to rethink

    the way it sees itself and the world, says Zanny Minton Beddoes

    A C K N O W L E D G M E N T S

    CONTENT S

    This special report beneted from

    help and insights from many people,

    not all of whom are mentioned in

    the text. The author would like to

    acknowledge in particular Katinka

    Barysch, Michael Burda, Daniel

    Cohn-Bendit, Ulrike Gurot, Manfred

    Gllner, Daniel Hamilton, Klaus-

    Peter Hansen, Claudia Kemfert,

    Markus Kerber, Claus Knig, Hans-

    Helmut Knig, Norma Kser-Voitz,

    Alexander Graf Lambsdor, Kurt

    Lauk, Johannes Ludewig, Christo-

    pher Mallaby, Frank Mattern, Boris

    Palmer, Volker Perthes, Jean

    Pisani-Ferry, Adam Posen, Alex

    Privitera, Gary Smith, Gabor

    Steingart, Constanze Stelzenmller,

    Stephen Szabo, Jan Techau, Murat

    Topal, Beatrice Weder Di Mauro,

    Shahin Valle, Dieter Wemmer,

    Guntram Wol and Robert Zoellick.

    A list of sources is at

    Economist.com/specialreports

    An audio interview with

    the author is at

    Economist.com/audiovideo/specialreports

    3 Election briengColours of the rainbow

    4 Germany and EuropeThe Merkel plan

    6 The economyDissecting the miracle

    9 EnergyTilting at windmills

    11 LabourErasmus generation

    13 German leadershipOvercoming the demons

    SPECIAL REPORT

    GERMANY

    The Economist June 15th 2013 1

  • 2 The Economist June 15th 2013

    GERMANY

    SPECIAL REPORT

    2

    1

    bigger role. But across a large swathe of European policy, Ger-many has become much more than a rst among equals. Andjudging by Frances weakness, Britains ambivalence and south-ern Europes debt problems, for the next few years Europes fu-ture will continue to be disproportionately Made in Germany.

    Outside Germany this dominance has become the subjectof lively debate. The German questionabout the role of acountry too big for Europe and too small for the world, as HenryKissinger famously put itis back on the agenda. Many fret thatGermany is becoming too bossy. Newspaper cartoons in south-ern Europe show Mrs Merkel with a Hitler moustache. SouthernEuropean politicians say Germany is selshly wielding its cloutto impose austerity policies that will wreck their part of Europein order to protect German taxpayers.

    Others are worried that Germany is being too passive. Ra-dek Sikorski, Polands foreign minister, fears German inactionmore than German power. On this view, Germany does notwant, and cannot exercise, the leadership required of a predomi-

    nant power. In the language of politicalscientists, it lacks the capacity to act as Eu-ropes hegemona leading country thattakes responsibility for the stability of aninternational system as a whole, as Amer-ica does for the world. William Patersonof Aston University in Birmingham hascalled Germany a reluctant hegemon.

    Within Germany this debate is al-most wholly absent. Germans are deeplyambivalent about their growing role inEurope, and generally uncomfortabletalking about leadership. The mere vo-cabulary is fraught with historical echoes.The German world for leader is Fhrer,the title adopted by Adolf Hitler. Mentionthe word hegemon, and German politi-cians inch. Mrs Merkel recently de-scribed the concept as totally foreign tome. Strategic thinking is strikingly ab-sent anywhere in government. Joschka Fi-scher, a former foreign minister, lamentsthat: Germans have never had a seriousconversation about the destiny of a re-united Germany in Europe.

    This is unlikely to change soon, so itis not easy to assess where a German-dominated Europe may be heading. Thisspecial report will try to provide some an-swers by looking at the forces that will af-fect German priorities.

    The most obvious short-term inu-ence is the general election due on Sep-tember 22nd. Mrs Merkel is widely ex-pected to win a third term as chancellor.She is personally popular and her party,the Christian Democratic Union (CDU),together with its Bavarian wing, theChristian Social Union (CSU), is far aheadin the polls (see box, next page). But it isnot strong enough to govern alone, andsupport for its current coalition partner,the Free Democratic Party (FDP), hasslumped. Mrs Merkel might end up go-verning in a grand coalition with themain opposition party, the Social Demo-cratic Party (SPD). And given Germanys

    complicated system of proportional representation, it is not in-conceivable that Mrs Merkel will be defeated by a coalition ofthe SPD and the Green party.

    Election politics has plainly inuenced Germanys recentreactions to the euro crisis. The countrys tough stance on bank-rupt Cyprus, for instance, reected the need to neutralise objec-tions by opposition parties to bailing out a place that had grownfat on laundered Russian money. But whatever its outcome, theelection is unlikely to prompt a sudden shift in Germanys policytowards the euro or the EU: German attitudes to Europe and toleadership run deeper than party politics.

    Where the past is ever-present

    The most important place to look for explanations is his-tory. The shadows of the past weigh on Germany more heavily,and in more complicated ways, than on any other big country.Those shadows can be divided into three broad groups.

    First, Germany has no historical experience of successful

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    25Manufacturing industry as % of GDP, 2012

    GDP% change on previous year

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  • The Economist June 15th 2013 3

    SPECIAL REPORTGERMANY

    2 international leadership. For centuries the German-speakingpeople lived in a collection of small, semi-independent states.The countrys two attempts at projecting power since i