Germany on top, Europe in trouble. Discuss. Part 2. European Disintegration?

Douglas Webber’s is a very different book, but it is also very complimentary to Bulmer’s and Paterson’s Germany and the European Union. Both hold a question mark in the title, and both place Germany centre stage, but Webber’s subject is more about European (dis)integration, and Germany as a member of the EU, whereas the Bulmer and Paterson volume is about Germany first and foremost. Both books, also, focus on the period since 2008-2010, and the outbreak of the global, then European financial crisis. In his introductory first chapter, Webber starts with the lead question whether in comparison to the previous crises that have beset the European project, this time things are different. Chapter 2 discusses different theoretical perspectives about the project, pointing out that none of them explain the  divergence in crisis outcomes, particularly in the post-2010 years. The missing component of these theories, he argues in unison with Bulmer and Paterson, is the concept of hegemonic leadership. Chapters 3 to 6 then present four detailed cases of crises in the Eurozone; the Russian seizure of the Crimea; the Refugee crisis, and Brexit. He brings the strands of his argument together in the concluding chapter, arguing that Germany is a “hobbled hegemon”, and that the EU project can only be salvaged by a revival of a confident Franco-German duopoly.

In his first chapter, Webber addresses  the theme of the EU’s resilience in the face of adversity. The idea is best expressed in a remark by Jean Monnet, the EU’s master architect: Europe, he said “will be forged in crises and will be the sum of the solutions adopted for this crisis”. Is this true? Webber asks. A review of some of the major crises would suggest that it is. When in 1954 the French National Assembly voted down the French government’s own proposal for a supranational European Defence Community, its protagonists proclaimed that the sky would fall in: the  French Communist Party leadership were delighted. [1] Yet within a year, the project was back on its feet. In 1965, President de Gaulle insisted in the Luxemburg Compromise that decisions had to be taken by consensus, an agreement to disagree that was followed by the completion of the Common Agricultural Policy and of the customs union. After five years insisting that the UK’s budgetary contribution be trimmed, in 1984 Prime Minister Thatcher joined Commission President Delors as a champion of the internal market. After the ejection of sterling and the lira from the European exchange rate mechanism in 1992-93, calm returned to the currency markets. In 2005, the Constitutional treaty was rejected by voters in The Netherlands and in France, but member states nonetheless signed the look-alike Lisbon treaty in December 2007. Q.E.D. The EU has shown resilience in the past and is most likely to in the future.

Not so fast, warns Webber. Previous crises are not a reliable comparator. They were time-limited; the crises  since 2010 are quite unprecedented in their longevity;  and they are all highly politicised, he suggests, relative to their predecessors. They are also multi-dimensional, and should be so assessed if we are to think about the process of (dis)integration in the EU. The first dimension, he proposes, is whether the issue areas on which the EU has competences are expanded or reduced;  the second is whether there has been an expansion or contraction of treaty-based competences effecting the authority of supranational organs; the third refers to the number of EU member states involved. He calls the three dimensions sectoral, vertical and horizontal.

Theories of European (dis)integration.

In Chapter 2, Webber presents a series of theories which try to assess disintegration. None of these amount to a coherent view of  the pressures at work in the EU. His method is to ask what they leave said or unsaid about the phenomenon of possible dis-integration. Each one has their specific place in the nomenclature of EU studies. I do not intend to recite them here, but rather pick out clusters of approaches in order to highlight their focus, and the questions which they seek to raise and answer.

I highlight four: the first is the focus on states as the main actors in an international arena of competition for wealth and security; the second is the way that international institutions may or may not act as restraints on the behaviour of states; the third is an emphasis on comparisons between the domestic cultures, politics, institutions and economies of nation states, entwined as they are in a highly interdependent world economy and society; and fourth, the importance attached to the ideas of political leaders, their differences, and their relation to domestic or foreign public opinions.

The first approach is the realist tradition of politics which posits states as the prime actors in international relations, in contrast to individuals, corporations or international organisations. It is rooted in the Treaty of Westphalia, signed in 1648, concluding the wars of religion that had wracked Europe since the 1520s, and that challenged the universal claims of the Papacy to moral authority over western Christendom. A central concept in the treaty was sovereignty, defined by the contemporary Dutch lawyer Hugo Grotius  as “that power… whose actions are not subject to the legal control of another”.[2]  Because there is no earthly authority above them, sovereigns are distinguished by their capabilities, with the weaker princes well advised to follow the advice of France’s Cardinal Richelieu to the effect that “the weakest are always wrong in matters of state.” [3]In its bleakest formulation, states- as collective egotists driven by fear and greed-strive to increase their relative power over others. Competition and conflict are the norm; peace is an interlude between degrees of war, starting by a competition for territory or markets, and escalating into full time war. In both peace and war, the society of states is always in a degree of anarchy. Paradoxically, it is this condition of anarchy that encourages states to behave predictably as rational actors to better their security and wealth: it is only when reason of state  gives way to passions that the calculus of power politics breaks down, and war becomes the war of all against all.

After the two world wars and revolutions of the first half of the twentieth century, this “Westphalian system” of sovereign states fell into disrepute. If we do not do away with sovereign states, wrote the liberal market economist Lionel Robbins, the sovereign states will get rid of us.  As Jean Monnet told Shimon Peres-the three time Prime Minister then President of Israel-in the late 1950s, “We have to unite Europe because the alternative is that our skirmishes, our wars, our insults that have characterized Europe in the past will continue for the next thousand years.” [4]

It may seem surprising to say so, but this is as good a definition of the neo-realist school of international relations as you can get. Webber cites one of its leading advocates, John Mearsheimer, who has written that without the glue of a common enemy in the form of the USSR, and without the military presence  of a common protector, the United States, the European states will return to their habitual state of anarchy. They will  do so not because passion would substitute for reason, as the classical realists argued, but because conflict is inherent in the structure of the state system. That is particularly the case for great powers, writes Mearsheimer, because “great powers recognize that the best way to ensure their security is to achieve hegemony now, thus eliminating any possibility of a challenge by another great power.”[5]The great power of Europe, absent the US, is Germany.

 

The second approach does not deny the propensity of states living in anarchy to conflict , but considers international institutions may act as restraints on their behavior. This was very much the approach of the British Labour governments of 1945 to 1951, that played a major role in setting up the post-war European institutions, such as the Council of Europe, the OEEC, or NATO. But  Prime Minister Attlee turned down membership in the ECSC on the grounds that supra-national institutions were incompatible with the primacy of the British parliament. De Gaulle’s ideas ran along similar tracks, except for the difference that he saw the EEC’s supra-nationalist ambitions as a means to create a French-centred western European sphere of influence, that would help tether West Germany to a French chariot, and moderate the influence of les Anglo-Saxons. De Gaulle also was no fan of parliaments, hence his creation of the powerful and directly elected office of the President in the French Republic.

In retrospect, de Gaulle introduced intergovernmental structures to the European project, and had the EEC serve French interests. Monnet had wanted it the other way round: that supranational institutions eventually enveigle nation states into surrendering their sovereignty. The theme achieved academic format in a book by the political scientist, Ernst Haas, in his 1958 book, The Uniting of Europe, Stanford: Stanford University Press. Haas argued the case for the “spill over process”, -in French, engrenage– whereby one function of government after another accrues to the EEC/EU institutions. As the process unfurls, lobbies and politicians migrate to Brussels. But the process slowed down to a crawl in the course of the 1960s.

The agent was de Gaulle. Sovereigns, he proclaimed, had to be able to  say Non.This was the theme of Stanley Hoffman’s essay, “La France, l’Europe et le sort de l’Eat-Nation”, [6]where he argued that nation states were not obsolete so much as obstinate: “For political unification (in the EEC/EU) to succeed, the nation states would have to not have been caught up on the one hand, in a whirlwind of pressures, due to the great diversity of their internal situations and their external inheritances; and on the other, that they would have been constrained and prepared to devote themselves exclusively to the task  of the (EU’s) construction…”. Hoffman reached a not dissimilar conclusion in a volume, co-edited with Robert Keohane and Joseph Nye-whom we have met in PART I of this essay- in which the authors concluded that “international institutions-both organisations and regimes-are significant not because they exercise control over states (with few exceptions they do not) but because they are useful to states”. [7]

Engrenage was taken out of retirement in the 1980s under the aegis of Jacques Delors as President of the Commission. With the backing of President Mitterrand, and of Chancellor Kohl, he launched his Russian doll policy: doll No 1 was the internal market; doll No 2 was liberalization of capital movements; doll number 3 was monetary union; and dollar number 4 was political union. This was the theme of Andrew Moravcsik’s The Choice for Europe: Social Purpose and State Power from Messina to Maastricht, Ithaca, Cornell University Press, 1998. The EU, Moravcsik explained, emerged through a series of inter-state bargains, involving intense diplomatic exchanges, and followed by periods of incrementalist activities by institutions and member states. The big bargains b became possible because of a convergence of interests and preferences by member states . These preferences and interests in turn were shaped by the particular constellations of domestic politics.

The third approach to the study of Europe is to compare the domestic cultures, politics, institutions and economies of nation states, entwined as they are in a highly interdependent world economy and society. As Webber points out, the proponents of interdependence argue that states are caught in an ever tighter web of market and political interdependence, sharply reducing the discretion that they have to answer to domestic demands or to international challenges. Because markets are global and huge, even the largest states are bound like Gulliver-a point made in 1968 by Stanley Hoffman[8]. That may be the case, says Susan Strange, but the smaller fry in the world system are even more constrained. She proposes a less state-centric way of thinking about the global power structure. That structure holds four sub-structures-security, production, finance and information-and the US sits at the hub of them all. “In every dimension of the power structure,” I write about Strange’s world view, “the US is pre-eminent, and therefore influences the balance of power between authorities and markets in a ‘new medieval’ world to affect outcomes that sooner or later tally with US values and interests.” Little has changed in global structure since Strange’s death in 1996.

https://storybookreview.wordpress.com/2011/05/18/jonathan-story-setting-the-parameters-extracts-from-chapter-2-in-strange-power-shaping-the-parameters-of-international-relations-and-international-political-economy-ashgate-publishing-limited/

Strange does not pay sufficient attention, in my view, to differences in domestic institutions, politics, market structures and cultures. This is nonetheless a crucial dimension, which the Bulmer/Paterson volume addresses. A major contribution to understanding why national economies perform differently came with  the volume edited by Peter Katzenstein, Between Power and Plenty: Foreign Economic Policies of Advanced Industrial States, University of Wisconsin press, 1978. The volume compares the differing domestic strategies, structures and performances of the US, the UK, Japan, West Germany, France and Italy in response to their shared condition of economic interdependence. They key to these differences, the volume’s theme runs, lies in the specifics of the “policy networks linking public and private sectors”. Study of these differences spawned a huge literature, encapsulated in the magisterial volume by Peter Hall and David Soskice, entitled Varieties of Captialism: The Institutional Foundations of Comparative Advantage, Oxford University Press, 2001, where a major distinction is drawn between national economies that use market and non-market mechanisms for coordination between firms, individuals, and institutions.  Since its publication, a further field of study has sprung up comparing the different ways that states shape capitalist business systems.  [9]This comparative field serves as a reminder that firms operate in an institutionally diverse world political and market system of which Europe is a diverse and internally differentiated part.

The fourth approach to the study of Europe is to focus  on the ideas of political leaders, their differences, and their relation to domestic or foreign public opinions. All of the above books quoted here deal in ideas: Haas’ famous book on spill-over, and published in 1958, described the ambitions of Commission President Hallstein in the early years of the EEC; Hoffman’s writings on de Gaulle placed the General’s ‘certaine idée de la France” centre stage to his analysis of the EEC’s likely evolution; Moravcsik’s concept of the EU advancing by occasional grand bargains was predicated on a convergence of interests of the member states, and of the way these interests were defined and conceived by the leaders who took the key decisions. Obviously, such an emphasis lends itself to the Great Man view of history as much as it does to a conspiratorial view of unaware publics being rumbled into situations that they never asked for.

This is particularly relevant in a discussion on the EU’s resilience to the crises which have regularly beset it over the decades. The “Monnet method” was to forge ahead, and to never take no for an answer. Europe’s higher interest commanded “more Europe”. Europe’s élites, the argument ran, were operating in the continent’s longer term interests: once fait accomplis  were established the populace would come around to support the new status quo. The method worked wonders as long as the project’s ambitions were still located in the future: but between 1992, the year when the Maastricht Treaty was signed, to 2007, when the Lisbon Treaty was confirmed, there was no credible disguising of the project’s ultimate goal-to merge the states of Europe as provinces into a USE. This did not prevent, the EU’s élites from carrying on as if nothing was changed. Here, for instance, is Jean-Claude Juncker on the forthcoming referenda in France and the Netherlands on the Constitutional Treaty in 2005: “If it’s a Yes, we will say ‘on we go’, and if it’s a No we will say ‘we continue’. He was good to his word.

Then in 2010, things did change: Germany took the lead in the EU, and southern Europe was precipitated into mass unemployment. None other than Jürgen Habermas, an arch pro-EU advocate, pointed out in a 2011 speech in Berlin, that the EU political elites “are burying their heads in the sand…They are doggedly persisting with their elitist project and the disenfranchisement of the European population.”[10]

The implications of Webber’s various schools can also be listed within my four categories – sovereignty the anarchic state system; international institutions, notably the EU, as possible restraints on the behavior of states; a shared interdependence but different national business systems; the ideas of leaders matter, and so do those of publics.

  • Webber notes that member states have not yet fallen out over “hard” security issues, as John Meersheimer has suggested they would or could. True. But there is a broad spectrum running from peace at one end to war at the other. As Webber notes, we have moved from a “permissive consensus” of support for the European project, to one of  “constraining dissensus”-it is that much more difficult to find the necessary common ground.
  • Webber points out that the intergovernmental/institutional approach suggests a number of implications for (dis)integration: the breakdown of Franco-German co-operation is not good news; nor is the spread of differing interests in an enlarged EU; nor is it clear that the larger member states behavior can be constrained within the EU.
  • All member states share a condition of market interdependence, but they do so with notably different business systems. Both Bulmer/Paterson and Webber note that Germany’s domestic system of negotiated co-ordination, for instance of the wage-productivity trade-off, is not replicated in France or in southern European countries.
  • Ideas of leaders and publics matter. Yes. But, Webber asks, what are the conditions for “anti-European” attitudes to prosper? One simple answer is: don’t impose austerity on a continent for a decade, and don’t pursue policies that the public does not support. Only 2% of EU citizens view themselves as “Europeans” in the Monnet sense of feeling at ease with a USE.[11]

In summarizing existing theories of (dis)integration, Webber categorizes them as optimistic and pessimistic: optimistic theories are those which consider that the member states are so entwined in the EU that the only sensible path is closer integration; pessimistic theories are those where politics trumps economics, especially in conditions in which the ambitious project for ever closer union has succeeded in politicizing mass publics. He adds one ingredient to the mix: the theory of hegemonial leadership-adumbrated in my discussion on Bulmer/Paterson-places Germany centre-stage. But, adds Webber, Germany is a “hobbled hegemon”.

The four cases: Eurozone, Ukraine, Schengen and Brexit.

Germany, Webber records, has played a central role in all crises, but with varying degrees of success. The outcomes of each crisis differ, also, in terms of more or less integration. By 2018, the Euro, he observes, has three more members than when the crisis broke; the ECB had emerged as the main stabilizer, not Germany; both the Commission’ s powers and those of the ECB were strengthened; a (small) bail-out mechanism was created to help stricken members; the task of bank supervision shifted from the member states to the ECB; a Eurozone resolution fund was set up to  to help wind-up bankrupt banks; and the member states signed up to the fiscal contract, to follow in Germany’s footsteps and balance their budgets. The EU in short has emerged more rather than less integrated from the Eurozone crisis.

Webber tracks the start of France’s bid to move to a monetary union from the time when President Pompidou took over the reins of government from de Gaulle; the ambitions of the Werner Plan to create a single currency with a large budgetary arm; the short lived currency snake; the Franco-German led initiative to set up the European Monetary System; the emergence in the 1980s of the Bundesbank as the European Community’s de fact central bank, and President Mitterrand’s  determination to link monetary union to French support for German unification. The Maastricht Treaty was largely German inspired: the union lacked any fiscal stabilizing mechanism; the future ECB was banned from the monetary financing of member governments deficits; no provision was made for Europe-wide financial regulation. In other words, Maastricht was a house half-made. It was voted down by the Danish electorate, and only squeezed through in the 1992 French referendum, with 51% of the voters in favour.  There was a widespread assumption that Maastricht’s deficiencies would be made good, when the expected crisis broke.

The chapter records the three Greek bailouts, and Germany’s central role throughout the process. The principal reasons for its influence was the structural power that Germany wielded in the EU on account of its being by far the largest economy, and the advantages conferred on northern member states by their wage bargaining systems  relative to the weaker wage bargaining systems of southern Europe. In addition, the German government had to export domestic imperatives-these are my words-into the EU: public opinion was overwhelmingly hostile to bail outs in southern Europe; business was concerned that a breakup of the Euro would send a German successor currency through the roof, undermining German export price competitiveness, and bankrupting German banks with exposures to the other Eurozone member states; not least, Webber argues that Merkel’s statement that the survival of the Euro was an existential matter for Germany underlined the fear in Berlin that, were the Euro to fail, the “German Problem” of a large, central European state, surrounded by smaller states, would re-emerge. In other words, neo-realism played its part, but as a warning rather than as a policy prescription.

Ukraine is the second case study. President Yanukovitch in November 2013 rejected the EU’s proposed association agreement, and signed up to Putin’s Eurasian Economic Union-a sort of ghost USSR. The conflict escalated; Russia in 2014 grabbed the Crimea, to great popular acclaim at home; the Russian majority in the peninsula enthusiastically voted in a referendum to accept Moscow’s sovereignty. Merkel quickly took the lead in orchestrating the European response, holding 68 talks with the Russian President between February 2014 and November 2015. EU wide sanctions were imposed on Russia, sustained by a broad European consensus that Russia’s actions in the Ukraine posed a fundamental threat to European security.

Germany’s leading role, Webber writes, may be attributed to its geographic location at the centre of Europe; its status as Russia’s prime trade and investment partner; the healthy state of German public finances, which enabled Berlin to give a helping hand to the government in Kiev; and not least because as a Russian language speaker, who had grown up in the German Democratic Republic, Merkel had long experience in dealing with Putin.  As Webber writes, she achieved most of her goals: the EU developed a common position on the crisis; Germany, with French support, negotiated the Minsk agreements with Russia; the EU did not disintegrate over the Ukraine, as had been the case, for instance, during the crisis over Iraq in 2002-3, when Berlin and Paris ended up siding with Moscow, against British, Polish or Spanish support for Washington. Overall, Webber counts Merkel’s policy as a success in that EU unity was maintained, in the face of tensions between capitals and businesses pushing for a more accommodating stance to Moscow, and a more hard-line lobby  of governments who placed European security concerns at the top of their priorities.

The outcome of the Schengen and refugee crisis was much less successful. The Schengen agreement of 1985 in which member governments had agreed to abolish border controls over time became absorbed into the supranational organs of the EU-the Commission, the European Parliament and the ECJ. But in 2015, conflicts developed among member states over policy of welcoming refugees from the Mid-East war zone, prompting Merkel to make her famous statement of August 2015, “Wir schaffen es”-signalling Germany’s Willkommen to a wave of immigrants, numbering up to one million that year. Her assumption seems to have been that other member states would follow Germany’s example. But she proved mistaken. The tide of immigration from the Moslem world touched on deep-seated concerns about Islam as a political and religious force in Europe; about the rights of member states to fashion their own immigration policies about who could or could not become citizens of their countries; and about the legitimacy of Brussels seeking to allocate immigrant quotas to member states. As Webber points out, Merkel soon found out that she had no stable partner; the authority of the ECJ was challenged; and some re-nationalisation of free movement and political asylum policy occurred. Germany did not have the leverage in the refugee crisis, Webber observes, that it was exerting contemporaneously in the Eurozone crisis.

On Brexit, Merkel took a back seat. Prime Minister Cameron appears to have hoped that he could make an alliance between London and Berlin in favour of a more inter-governmentally oriented EU. But as I have recorded elsewhere on this blog, this was not the direction of policy taken by Berlin and Paris following the outbreak of the Eurozone crisis. As Webber points out, Merkel was unwilling to lead on Brexit. I would put it slightly differently: she was quite prepared to allow Hollande to take the lead, and confront Cameron with a clear choice: either sign up to “more Europe”, or head for the exits. In fact, the outcome of Cameron’s “re-negotiation” of the UK in the EU proved to be unsellable to the British public; Merkel publicly regretted the vote for Brexit on June 23, 2016. But after her first meeting with Prime Minister May, when May is reported as seeking to follow-up on her predecessor’s vain hopes for a bilateral understanding between Berlin and London, Merkel said: “I do not wish to be alone again with this woman”. Merkel backed the French position on Brexit to delegate the task of negotiating the UK’s exit to the Commission. The unity of the 27 was thus assured.

I would argue that Merkel in effect helped to nudge the UK out of the EU, and she did so because the UK’s advocacy of a loosely knit EU was incompatible with her strong preference for a more tightly integrated EU. In October 2015, President Hollande and Chancellor Merkel both addressed the European Parliament in a show of solidarity for “more Europe”. [12]“If (you) don’t want a stronger Europe,” Hollande said in reference to the UK, “the only possible path is simply to leave Europe.” Merkel did not overtly dissent: “We must now resist the temptation to fall back into national government action. Right now we need more Europe! Germany and France are ready.” Nigel Farage was more blunt: “When Kohl and Mitterrand came here representing their countries, it was a partnership of equals. But no longer. France is now diminished, trapped inside a currency. It is an irony that a project designed to contain German power has now given us a totally German dominated Europe”.

This is most definitely not Webber’s conclusion. Wrapping up his discussion on EU (dis)integration, he provides a nuanced view: The EU is coming through the Eurozone crisis more integrated; there is no change in terms of EU dis-or integration over the EU’s collective handling of the Ukraine crisis: there is a partial dis-integration over the refugee crisis; and there is a major “horizontal” dis-integration with Brexit. Webber does not say so, but Brexit is the equivalent of the EU losing 20 smaller member states. In other words, there is no uniform pattern of (dis)integration to emerge from his case studies: His conclusion: Germany as a hobbled hegemon” is not an Atlas capable of holding the EU together on its own shoulders. It needs a partner in hegemony, and his preferred partner is France.

Concluding comments on the Bulmer/Paterson and Webber volumes.

As readers will have gathered, I consider both these books excellent contributions to the on-going debate about whither Europe. Simon Bulmer and William Paterson’s Germany and the European Union: Europe’s Reluctant Hegemon? argues that “Germany has not become the EU’s hegemon”. It could be profitably read alongside the former British ambassador to Berlin, Paul Lever’s book, Berlin Rules, which argues that every major initiative on the EU and on Europe is first passed through German scrutiny. Douglas Webber’s European Disintegration? The politics of Crisis in the European Union, also provides a nuanced view, and sees the EU’s future as best assured through  “the rejuvenation  of the Franco-German tandem”. His book could be profitably read alongside Mai’a K. Davis Cross’, The Politics of Crisis in Europe, (Cambridge University Press, 2017) which  argues that the crises she analyses has led to the Union’s strengthening. Luuk Van Middelaar, in Quand l’Europe improvise: dix ans de crises politiques, (Gallimard, 2017, translated from the Dutch) argues that the severe crises of the past ten years show  Europe in gestation from an apolitical construction, inherited from the early years of the European project, to being a more highly politicised entity. I have reviewed both these books on this blog: https://storybookreview.wordpress.com/2019/01/21/british-ideas-of-europe-part-3-the-european-union-in-crisis/

What follows are some concluding remarks of mine. They turn around the  key concepts of realism, the sovereignty of states, and the condition of anarchy. They are, I would contend, alive and well in the actions of Europe’s leaders, and in the behaviour of the major European states, Germany and France. Jean Monnet is the clue. If a federal union is not achieved, says the project’s chief architect, then the condition of anarchy in the world, and between the member states, will, not may, overwhelm us all, and start us on the road to revolution and war. Perhaps the road will be long, marked by a slow deterioration in relations between states, but the direction of travel will be set. To avoid such a future, Europe has to be recast. That was the motivation behind Kohl’s readiness to place the DM as sacrifice on Europe’s altar in 1989-92. It is what Mitterrand meant when he told the European Parliament that “nationalism is war”. It is what drives Jean-Claude Juncker to say, “when it becomes serious, you have to lie”.

Does such a sentiment inform Berlin’s policy? Paul  Lever’s answer is that Germany is wielding power without purpose. My reading of the authors of these two books is that they quietly dissent. The authors of these two books consider that Germany is in the paradoxical situation of having to impose its will on other member states-notably on monetary union, unsuccessfully on the refugee crisis- in the higher interest of European union. The German hegemon is not hobbled on the Eurozone; it achieves nearly all its objectives; it is not bothered by the lack of consent among member state followers; its body language says if you want monetary union, then it is on my terms. It has to because otherwise it loses crucial domestic support. That support, as Bulmer and Paterson demonstrate, cannot be taken for granted. My Bavarian niece puts it in a nutshell, tongue not quite firmly in cheek: “hauptsächlich mir geht’s gut”-losely translated as “as long as I’m fine, everything is OK”. It is not a very exalting philosophy, and  it does not provide much present vision for Europe’s future. But it deals with No 1 via protection of the  home base, and if necessary, to do so by using Germany’s structural power in the Euro. It is predicated on the position that I look after my own affairs, and others should look after theirs, both domestic and the commitments they make in the EU. Nicolas Sarkozy was reportedly told as much by Merkel in discussing a proposal for  a joint effort to prop up the European banking system: “The Chancellor told us,  we should all clean up our own shit”. [13]

The authors of the two books have nuanced differences over Germany’s role as a stabilizer. Webber’s answer is Germany is a partial stabiliser: it was the ECB, not Germany, he argues, that stabilized the Eurozone-albeit at an unstable equilibrium: Merkel played a lead role over the Ukraine crisis; was definitely not a stabilizer in the refugee crisis; and took a back seat over Brexit. Bulmer and Paterson have harsher words to say over the Eurozone crisis.

Kindelberger presents five functions for a hegemon if it is to act as a stabilizer on international markets and politics. Since 2010, Germany has supplied two of those functions: it has helped to police a stable system of exchange rates (the Euro), and it has ensured co-ordination of macroeconomic policies. But these two functions have been applied with ordoliberal criteria, which lack legitimacy in France  and southern Europe. Germany has maintained a niggardly open market for distress goods;  it has opposed  countercyclical lending-but has ended up as the prime supplier of credit to distressed member states; and has very reluctantly gone along with the ECB’s acting as a lender of last resort in the ECB’s TARGET 2 facilities, where German trade surpluses have incurred an unrepayable Euro 1 trillion by Germany’s southern trade partners. It is unrepayable because Germany has rejected the thesis that the Eurozone crisis is not due to a lack of competitiveness crisis but a crisis of demand.[14]

Why? A quick answer is that  ordoliberalism does not do demand management. But there is more to Germany’s international economic policy than ideas, though there most definitely is a clash of ideas between what may be termed a Keynesian France and an ordo-liberal Germany. For decades, the western allies-France, the UK, and the US-have requested, intermittently, for Germany to allow the currency to revalue (prior to 1999 and the introduction of the Euro) or to boost domestic demand. The response has been a consistent Nein.

There are two reason for this: the first is that as of 1951, Germany has almost persistently run a trade surplus; in the 2000s, this trade surplus has often exceeded China’s.  The original purpose of running a trade surplus was for the Federal Republic to avoid the currency instability associated with payment of the Versailles Treaty debts, and with the regular current account deficits experienced during the 1920s. As with the constitutional convention’s approach in drawing up the Basic Law, the overarching objective after the war was to avoid all the mistakes, real or presumed, made by the Weimar Republic. One component of the desire to stabilize the economy was to run a trade surplus.

The second is the preference to have a stable financial and banking system. As the DM began to revalue against other currencies from the late 1960s on, the Bundesbank was very careful not to keep surplus funds within the German financial system, and thereby build up Germany, later Berlin, as a prime financial centre, competing with London, New York or Paris. In 1967, the three “big banks” were given the wink by the Bundesbank to locate in Luxemburg, where they could comfortably engage in recycling funds without disturbing the Bundesbank’s close control over domestic monetary aggregates. The Bundesbank also encouraged the big banks to locate in London and in New York in the course of the 1990s: as Mr Kopper, the speaker for the Board of the Deutsche Bank, said in 1994, both communism and national-socialism saw the interest rate as a source of exploitation. “The systems collapse and the prejudices survive. [15] Consciousness of Germanys history in the first half of the 20thcentury continues to haunt German policy, and most forcibly in matters relating to finance and money.

In other words, Germany most definitely does pursue a national interest, and does so via exporting its domestic preferences into the international arena as an exigency. Beyond domestic opinion, and the special features of the German business system, these exigencies derive from two pillars of the Federal Republic.

The Bundesbank has been one pillar of the Federal Republic, expressly placed above politics and devoted to price stability. The other pillar is the Constitutional Court whose task is to protect and to promote the constitutional state, the Rechtstaat. For diplomatic reasons relating to French policy, the Bundesbank insisted that the ECB be moulded in its likeness. France conceded. The Constitutional Court acted in parallel: it took steps in its two judgements on Maastricht and Lisbon to reinforce the powers of the two houses of parliament. By stating that the member states were “masters of the treaties”, it strongly diluted the concept of supranationalism; it backed that up in the Lisbon judgement by declaring that the EU was not a  Bundestaat, but a Staatenbund, an alliance of sovereign states; it confirmed the fundamental rights of German citizens as adumbrated in the Basic Law that they had an inalienable right through the exercise of their votes in elections to sanction their legislators.

The Bulmer/Paterson volume book gives salience to this crucial development. It should be read by all UK Remainers, who allowed the referendum to be lost, because they did not pay sufficient attention to the demands of the British electorate to be able to sanction their legislators at election time. The UK, as I have argued, elsewhere on this blog, remained officially more supranational than the Pope. Whitehall officials joined with officials from other member states and sidelined Westminster. No such thing happened in Germany.

The Constitutional Court and the Bundesbank in their own domains insisted that German values, as laid down in the Basic law, and in the Bundesbank’s own statutory foundation, would be defended. So does Germany have the capacity to shape Europe’s future? The Constitutional Court has said that if the EU were to move towards becoming a Bundestaat, a constitutional convention would have to be called. It is far from clear that the convention would decide in favour of an EU federation: the only terms on which it could be envisaged as deciding in favour of a European federation is if that federation were in effect Germany’s own constitution writ large.

This is Germany’s vision. We should not look for vision, I suggest, in Chancellor Merkel’s sayings. It is not for her to do vision. That is for the German President, the Bundesbank and the Constitutional Court.

What is the chance of France swallowing such a  format for Europe’s future? President Macron seems to think it possible: he talks of the EU’s sovereignty, a sovereignty that could be compatible with the idea of the states as “masters of the treaties”. But the phrase itself is predicated on the member states being their own masters, separate and distinct. That is far removed from a conception of the EU as supranational. It is the Constitutional Court which challenges the ECJ’s claims, and rightly so: as the text from the legal opinion on the Lisbon treaty quoted above clearly indicates, the powers that the ECJ claims have never been recognized categorically in any Treaty. Had the Constitutional treaty of Giscard d’Estaing passed the hurdle of the Dutch, French and Irish referenda, the EU would have become overnight supranational. It is not, and Germany’s defense of its own sovereignty remains firmly in place.

If we live in a half-way house, part supranational, part intergovernmental, does Germany have the means as a potential hegemon to impose its views? It can use side payments; it can tread on small countries, like Greece over the Eurozone crisis, or like Portugal and Ireland in 2003 who were berated for running budget deficits while Germany took the law into its own hands and broke Germany’s own Growth and Stability pact. It can chide Hungary and Poland for being “nationalistic”. But, says Webber, the record speaks for itself. It is central but hobbled. It needs France.

In the Eurozone crisis, Germany in effect stood alone. In my estimation, Merkel ripped aside the veil of pretense purveyed by  previous chancellors that Germany and France were equals. It was done brutally; Germany, the conclusion is, is on top and Europe is in trouble. Germany may be a hobbled, or a reluctant hegemon, but it is a largely non-negotiable hegemony. In fact, Germany has seen to it that integration has proceded apace in the realm of monetary, fiscal and banking union. But that progress in integration has itself been divisive. Definitely, Germany in the Eurozone crisis has not acted  in a benevolent manner. On foreign and security policy, it does have a policy: non-fulfilment of the NATO commitment for member states to invest over 2% of gdp in security. Germany invests just over 1%. On face value, Germany is militantly pacifist. Maybe that is the key to the role that Merkel played over the Ukraine crisis: perhaps she was seeking to minimize the fall-out between Berlin and Moscow. Definitely, both France and Poland keep a close eye on Germany’s relations with Russia.

The  authors of these two thought-provoking books argue quite clearly that Germany is not up to the task of leading such a complex polity as Europe’s. It needs partners: the UK is perhaps Brexiting; France, with Macron, is willing, but will it get what it has asked for twenty years-economic union- from a Germany that has consistently said Nein Macron is trying again: in a letter to “Dear Europe: Brexit is a lesson for all of us; it’s time for renewal”, [16]he writes, “We are at a pivotal moment for our continent, a moment when together we need to politically and culturally reinvent the shape of our civilisation in a changing world. Now is the time for a European renaissance. Hence, resisting the temptation of isolation and division, I propose we build this renewal together around three ambitions: freedom, protection and progress.”

What he wants is a Big Leap to write a constitution for a USE. Implicitly, with his British allies, he is willing Brexit to fail. Explicitly, he fears the revival of nationalism-the populist wave which Webber signals in his final chapter. Which is the nationalism that he fears most? The tragedy that may lurk at the heart of French policy since 1950 for a supranational, federal Europe, is that it is blind to the reality that the national state is Janus-faced: warlike, on one side; democratic on the other. By risking suppression of parliamentary democracy in favour of  more supranational Europe, French diplomacy risks helping to revive the uglier face of nationalism. That is what I argue in “Europe’s revolution-the unintended consequences of good intentions”, here on this blog.

https://storybookreview.wordpress.com/2018/09/30/europes-revolution-the-unintended-consequences-of-good-intentions/

 

[4]Quoted in Strobe Talbott , Monnet’s Brandy and Europe’s Fate: a determined Frenchman’s vision of integration serves as a guide to the unending eurozone crisis”, The Brookings Essay, November 2, 2014.

[5]John Mearsheimer,The Tragedy of Great Power Politics, New York: W. W. Norton, 2001.  p. 35.

[6]In Stanley Hoffman, Essais Sur La France, Editions du Seuil, 1974, pp. 383-433.

[7]Robert O. Keohane, Joseph S. Nye, Stanley Hoffman, After the Cold War: International Institutions and State Strategies in Europe, 1989-1991,Harvard University Press, 1992.p. 383.

[8]Stanley Hoffman, Gulliver’s Troubles: or, the Setting of American Foreign Policy, McGraw-Hill, 1968.

[9]Redding G, The thick description and comparison of societal systems of capitalism, Journal of International Business Studies, 2005, Vol. 36, 123–155; M A Witt and G. Redding “The Oxford Handbook of Asian Business Systems”, Oxford University Press, 2014

10. Judy Dempsey, E.U. Elites Keep Power From the People, New York Times, August 22, 2011.

[11] European Commission, Standard Barometer, Spring 2015. Tables of Results. Public Opinion in the EU. TNS opinion and social. European citizenship. p. T115.

[12]http://www.europarl.europa.eu/news/en/news-room/20150929IPR94921/françois-hollande-and-angela-merkel-face-meps

[13]Jean Quatremer, « L’Allemagne est-elle encore européenne », Le Canard Enchainé, 2 février 2009.

[14]Charles Wypolosz, The Eurozone Crisis and the Competitiveness Legend, Asian Economic Papers,  12(3):63-81 · October 2013.

[15] “Kopper gesteht Arroganz”, Handelsblatt, June 15, 1994.

[16]The Guardian, March 4, 2019.

About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) (www.chinauncovered.net) His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
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