German Power in the EU

 

by Hans Kundnani

Germany’s current power derives from fundamental imbalances in the single currency system, which it has exploited during the crisis to impose its own preferences on other eurozone countries. Its “semi-hegemonic” use of its economic position on fiscal matters may lead to renewed application of allied conflict responses across the continent.

In his recent post “State Power within European Integration,” Josef Janning asks an important question: is Germany really as powerful at the moment as everyone seems to think it is? To this end, his attempt to quantify German power – that is, the ability to convert resources into outcomes – is useful. The problem is that Janning’s quantification almost completely ignores Germany’s economic power. The real reason many speak of the emergence of a “German Europe” is not because of its contribution to the EU budget (the only measure of economic power included in Janning’s “power calculator”), but rather because Germany has been able to use a combination of its position as a creditor and the structure of the single currency to impose to a large extent its own preferences on other eurozone countries since the crisis began.

Janning is right that German power derives in part from its geographic location in Europe – what was once called the Mittellage. It was partly due to this location that Germany was in a unique position to take advantage of the end of the Cold War and the enlargement of the EU to integrate Central European economies into its own. This has both contributed to the current success of the German economy, as well as resulted in a close alignment of Central European and German economic interests. As a result, German power within Europe has gradually if nearly silently increased over the last two decades.

It is above all the single currency, however, that has amplified German power rather than constrained it, as President François Mitterrand had hoped it would at the time of German reunification. The single currency was created without either a political union or any way to stop the emergence of large macroeconomic imbalances between its members. As capital flows increased in the decade after it was created, the euro created divergence rather than convergence among European economies, in particular between surplus countries – of which Germany is by far the largest – and deficit countries. It is this unique situation – that is, large macroeconomic imbalances within a single currency area consisting of sovereign states – that gives Germany its current level of unprecedented power.

In any financial crisis, creditors are in control. Since Germany is by far the largest creditor in the eurozone, it can impose conditions on debtor countries in exchange for an agreement to stand behind their debt and thereby reduce the interest rates they pay. Eurozone countries could in theory leave the single currency, returning to devalued historical currencies, but, in part because there is no mechanism for a country to leave the eurozone, this would result in economic devastation upon departure (which is why George Soros has argued that it is Germany that should leave if it cannot lead). The deficit countries therefore have little choice but to accept Germany’s demand that they reshape their economies according to Germany’s preferences.

It is of course true that there are other forms of power – above all military power – that could balance Germany’s economic power. But member states cannot use, or even threaten to use, military power within the EU. Thus, although France and the UK have greater military capabilities than Germany – including a nuclear deterrent – allowing them to project power beyond Europe, these resources cannot be used to coerce other EU member states, meaning they are not a source of leverage within Europe. This is why Janning’s calculation of relative member-state power is incorrect to include military power. On the contrary, insofar as a country such as France continues to spend money on maintaining and deploying its military resources, as it recently did in Mali, it may actually further weaken its economic power relative to Germany.

Although Janning underestimates German power, he is right, however, to conclude that it faces limits. As he points out, “Others could easily match the German leverage were they to join forces.” But he stops short of spelling out the implications of this rather alarming conclusion, which brings to mind the classical (i.e. pre-1945) German question. From unification onwards, Germany was too big for a balance of power in Europe and too small for hegemony – an inherently unstable situation that the German historian Ludwig Dehio would later aptly identify as “semi-hegemony.” It meant that other European powers, none of which was powerful enough to stand against Germany on its own, had little choice but to form an anti-German coalition to balance it. Such a coalition led to World War I.

I have argued elsewhere that the classical German question has now reemerged in a geo-economic form. Although Germany has gone further than almost any other EU member state in its rejection of the use of military force and would certainly never use it within the EU, it nevertheless uses another form of hard power – economic power – as a form of coercion against other member states. Though the means are different, German power is once again such that other European countries have little choice but to “join forces,” as Janning suggests they could – the geo-economic equivalent of encirclement. Although there is no question of war, the dynamic is the same. If European history is anything to go by, German “semi-hegemony” may once again lead to greater conflict within Europe.


HANS KUNDNANI is editorial director at the European Council on Foreign Relations.

 

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