In an ironic reversal of fortunes, Germany now finds itself on the defensive, as Berlin’s economic policies faced doubts and outright criticism at the G8 meetings at Camp David this past weekend. Once admired for its stability, for having combined growth and social cohesion, and for having met China’s advent without paying the price, Germany now has to justify its fiscal obstinacy. Until a few weeks ago it was considered an asset, but now Germany’s stubbornness is taking fire.
This change in position is the responsibility of German Chancellor Angel Merkel, whose recent choices have seriously damaged the credibility that Germany has painstakingly earned through the difficult decades from postwar reconstruction to the birth of the Euro. Merkel transformed the country from the cradle of stability, into the altar on which are sacrificed the hopes for growth. She has conducted a nearsighted battle, choosing to focus on her local issues (state elections, for example), rather than seizing the guiding economic role that the size, and success, of her country would have allowed.
Now Merkel is feared but criticized by everyone, including the voters who she so carefully courted. Public opinion, not to mention the White House, has turned against her harsh strategies. A crippled Eurozone would hurt the American recovery, and thus Obama’s reelection bid. Both citizens and governments alike are against the spending cuts that so far have only managed to bring about the deepest recession since the end of WWII and risk postponing a recovery indefinitely. The axis with France has been dissolved following the election of Francois Hollande; European voters have punished the politics of austerity. Germany has the resources and capability to take the reigns of the old continent, and although its concerns do have merit, they are seen as a manifestation of self-interest, and the country is considered an enemy of growth. Under Merkel, Germany appears to be a great country with a poor guide. Even the most cautious German entrepreneurs are aware that austerity at all costs will not only isolate the country, but it will strangle the neighboring economies, towards which German exports continue to flow.
Even China is preoccupied with the stagnating European economy. Germany has been for China an excellent partner thus far: sober, technologically advanced, an investor, and ready to negotiate. Europe is also the number one destination for Chinese exports. That Europe’s economy is shrinking, sacrificed by the rigors of Berlin, is certainly not appreciated in Beijing.
This objective fall from grace of German prestige is the result of Merkel’s persistent punitive attitude, with no room left to breathe. European Unity and the fate of people and nations are being sacrificed in the name of fiscal rigidity. Merkel’s moralizing is hypocritical – German banks are massively exposed to Greek debt – and most importantly it is uncalled for. She has yet to understand that the future of her country is tied to Europe, and not just the other way around. There is a very real possibility that unprecedented alliances will come together in Brussels to oppose the principles of balanced budgets as a prerequisite for growth. Industrialists, unions, parliaments, and public opinion are all united against austerity. Finding refuge in an ivory tower just to view the devastation below is hardly beneficial to anyone, not even to Germany.