2020 - Birth Of A Continential EU

With Britain out of the EU and France Increasingly at Odds with Germany, History Returns:

Western Powers vs. Germany and Central Europe

BREXIT - A TECTONIC SHIFT THAT PUSHES GERMANY EAST?

The UK is finally leaving the EU on 31 January. After years of debate, British voters have decided, again, that they want to leave, and gave Prime Minister Boris Johnson a clear mandate for Brexit in the elections on 12 December 2019.

One reason, seldom mentioned, is probably a general feeling of malaise regarding the power of Germany in the EU. Historian Norman Stone, who passed away last summer far too soon, said that “we now have the Germany that we needed two World Wars to create”.¹ But there seems to be a widespread feeling in Britain that after winning those two World Wars, they do not want to live in EU power structures increasingly dominated by the Germans and their allies. That feeling is widespread in France as well and partly explains the prominence of the anti-EU, anti-German “Rassemblement National” (RN) led by Marine le Pen.

Without the UK, the EU becomes a continental affair in which Germany’s relative weight will again increase. All eyes are on Berlin: how will Germany position itself? Historically, close cooperation between Germany and France has been the EU’s centre of gravity.

But that may change. Particularly, the Visegrad countries of East Central Europe (the V4: Poland, Hungary, Czechia, Slovakia) are becoming a political and economic heavyweight, and they have been reaching out to Berlin for years to form a strategic alliance.

THE PROBLEM WITH FRANCE

France under Emmanuel Macron has become a difficult partner for Germany, demanding sweeping reforms in the EU, sinking Manfred Weber’s candidature for the presidency of the EU Commission, calling for an opening towards Russia and calling NATO “brain-dead”. It may become even more difficult: Macron’s popularity is plummeting. Marine Le Pen and her fiercely anti-German RN are the strongest opposition force. Elections are due in 2022.

Conceivably, Macron has realised just how strong Germany may become, and aims to limit potential German dominance much in the same way François Mitterrand did when faced with the prospect of German reunification. He agreed to it only if Germany would agree to the euro, a means to bind Berlin into something it could not break out of even if one day it wanted to. The French have historically tried to tie Germany down in common structures, and to provide the bureaucrats to lead those institutions. Macron’s idea of a European Army is a typical case: France would be the natural choice to lead such an army. It is the only country with nuclear weapons in the EU (not counting brexiting Britain) and the only one ready to intervene militarily abroad. Macron also demands more transnational decision-making structures in economic policy, that would limit Germany’s room for manoeuvre. Berlin has politely nodded to his proposals without in substance agreeing to anything.

WITHER GERMANY? WEST OR EAST? MORE EU OR MORE NATION STATE?

Times are changing, and the first year of the new decade will show how Berlin intends to tackle the future. Much will of course depend on who leads the country after Angela Merkel steps down in 2021. An electoral breakthrough for the Greens may push the country to the left, and to embrace Macron and southern Europe in the spirit of “solidarity”, aiming for complete European integration. But there is a strong undercurrent that favours some form of return to the nation state and/or cooperation with Central Europe.

Political scientist Andreas Rodder (of Gutenberg University, Mainz), one of the most incisive conservative thinkers in Germany, has called for the EU to “mobilise its strongest political resource, the power of the nation states” and for Germany to strike some sort of deal with France and Britain to form something he calls the “E3”. In Rodder’s analysis, the EU’s main problem is an obsession with institutions, and a lack of leaders and leadership especially in Germany. With Boris Johnson in the UK and Emmanuel Macron in France, he argues, such leaders are at hand. If only Germany could also produce a convincing leader, the three of them could set out to do great deeds.² All of this sums up to “less EU”, “more nation state” and a power shift towards an innovative alliance of the historical “Great European Powers”: France, England and Germany. As England will not be part of the Union anymore, this means quietly sliding out of the straightjacket of the EU without bursting it. If such an informal alliance becomes the centre of gravity of European politics, then the EU as an institution becomes less relevant.

Economist Joseph Stiglitz has argued, in his book The Euro, that either “more” or “less” EU are required in order for the euro to work. “More” means more transnational economic decision-making powers, and “less” means less common currency — abolishing the euro as we know it. Stiglitz prefers “more EU” because he thinks the world needs a strong Europe and its values. But economically, he argues, “less” would also do the trick, in terms of returning the continent to strong growth rates.

Small wonder, then, that the debate about pro and contra a more integrated EU has largely been one between the Eurozone countries, who argue for the kind of superintegration that the euro demands, and those countries who enjoy strong growth because they are not hampered by the common currency: Britain, Poland, Hungary.

In this debate, Germany is commonly regarded as wanting “more integration”. In reality, it probably just wants things to stay more or less the way they are. Germans view their country as an economic success story and the euro as a symbol and a motor of that success. But only in combination with the kind of responsible fiscal policy that Germany practices and would like everyone else to practice.

However, the kind of integration that countries like France (under Macron), Greece or Italy would like amounts to a “Transfer Union” where strong performers like Germany permanently support weaker countries with financial transfers, for instance via sharing their debt.

This is exactly how Germany itself works: strong Bundeslander (federal states) support the weaker ones. But an EU as transfer union in the spirit of Stiglitz is too much “more EU” for Berlin. Germany wants to keep the euro but not turn it into something that sucks even more money out of the country.

Natural allies in this regard are “northern” member states like Holland, Denmark, Austria. But increasingly, the countries of East Central Europe are becoming attractive as partners. They are Germany’s dream of what poorer countries should be like if they want to prosper: industrious and disciplined. Most of them do not have the euro, but they do not have a problem with Germany’s wish to more or less keep it as it is. They do not want Germany’s money. They are ready to support Germany against demands for reform by France and the “Club Mediterranee” of the highly indebted countries of southern Europe.

WHY THE V4 ARE BECOMING ATTRACTIVE

The V4 have become hugely important for German industry. Collectively, with a population of 64 million, they are the fourth largest economy in the EU (without the UK). Their economic growth has been stronger than the EU average every year since 2012. If that continues, they will sooner or later catch up with the most developed countries, but can it?

Former Hungarian National Bank Governor Peter Akos Bod thinks not. He believes that these countries, economically the periphery of Germany, grow more dynamically than the average when Germany grows, but that they are hit much harder than the average when Germany declines. Current National Bank Governor Gyorgy Matolcsy however argues that Hungary can continue to grow its GDP by two percentage points more than the EU average. Extrapolating one of Joseph Stiglitz’ arguments, Matolcsy has a point: if indeed the Euro in its current dysfunctional form is one reason for sluggish growth in the eurozone, East Central European countries that have kept their own currencies and pursue an efficient economic policy can grow quicker, by comparison.

They do more trade with Germany than Germany does with France, and “are much more important for us than even China”, CSU honorary chairman Eduard Stoiber, a former Prime Minister of Bavaria, told me in November.³

A lot of that trade is, as Germans like to point out, trade between different branches of German corporations, who have chosen East Central Europe as their preferred region for producing cars, electronics and other high-value products. They often point out that the V4 countries are not equal partners but are dependent on German industry. But the opposite is also true: because German industry is so deeply embedded in the economies of these countries, it very much depends on them as well and would surely suffer if the region one day chose to stop supporting German companies with huge tax breaks and subventions.⁴

This economic dependence on East Central Europe is currently enhanced by a downturn for German industry. Already workers are being laid off in Germany. This will also impact the V4, but relatively speaking they are becoming even more important for those corporations because their workforce, though highly qualified, is cheaper. Also, the extent of government support for these corporations in countries like Czechia or Hungary, in terms of tax breaks, direct subsidies and infrastructure, exceeds even the level of support they would be able to get in Germany.

The V4 are using their new economic clout to strengthen their already considerable political weight within the EU. They buy military hardware from Germany and France (helicopters, tanks, artillery) mainly to buy political goodwill, and they buy US weapon systems for the same reason. They, together with Macron, decided who would get to be President of the new European Commission after the European elections in May 2019. Ursula von der Leyen, a close ally of German chancellor Angela Merkel, owes them her job.

GERMANY’S SLOW SHIFT TO EAST CENTRAL EUROPE

For all these reasons, after years of bitter dispute about subjects like the rule of law and migration, Germany has come to realise how badly it needs East Central Europe. A rapprochement has become visible. It is not limited to the conservative side of the political spectrum. Foreign Minister Heiko Maas (SPD) has announced a “new Ostpolitik”, an opening towards East Central Europe.

Visits by Chancellor Angela Merkel (in August) and Maas (November) in Hungary have highlighted the new tone in relations. The heads of state of the Visegrad group were, in a highly symbolic gesture, invited to join the commemoration of the fall of the Berlin Wall last November.

All of this happened in the framework of festivities to mark the end of Communism 30 years ago. But it also served to signal the beginning of a closer political relationship between Germany and East Central Europe.

Also in November, the liberal FDP filed a motion in the Bundestag asking the government to establish an institutionalised strategic partnership with the V4. The aim would be to “develop common positions with the four Central European states in key areas regarding the future of Europe”, the text states. It proposes to create the position of a coordinator for relations with the V4, to organise regular, common government or cabinet meetings, and to sharpen awareness in Germany for their cultural heritage and interests.⁵

Because this is a motion by an opposition party, it stands no chance of success, but a number of conservative politicians (Stoiber, CDU-MP Alex Fischer, CDU-MP Volkmar Klein) have told me that in substance such a partnership is “absolutely necessary” (Stoiber) and that they will work in the commissions to adopt as much as possible of these propositions into government policy (Fischer, Klein).

Such a rapprochement could, in the eyes of Berlin, also serve to separate the V4 from right wing forces in Italy (Matteo Salvini’s Lega Nord) and France’s Marine Le Pen, and perhaps foster a strengthening of liberal political forces in the V4. The FDP motion, for instance, calls for an active support by Germany for civil society in these countries.

The biggest problem for such a change of tack is the poisonous debate about the rule of law — to a large part created by German media and politicians. For such a partnership to formally take shape, Article 7 procedures against Poland and Hungary in Brussels must be somehow resolved, in order for German politics to be able to openly embrace the V4.

How? Nobody knows. “Absolving” these countries from their alleged sins would expose any party or government that support such a move to vicious attacks from the left and the media. To condemn them is not possible either — that requires a consensus of all EU member states.

The obvious solution would be to create a new “rule of law” mechanism that would be applied to all countries, and to shift the current Article 7 procedures to that mechanism. Because all member states would be monitored there all the time, and all member states have some problem or other with the somewhat nebulous “rule of law”, it can be surmised that such a new mechanism would be handled much more cautiously than current Article 7 procedures. For instance, France’s Constitutional Council, composed of former Presidents of the Republic and nine political appointees, cannot by any stretch of the imagination be said to be politically independent.

To sum up, there is a good chance Germany will slowly turn towards the East rather than, as Professor Rodder proposes, to the West in the new “continental EU”.

Already, the current Croatian EU-Presidency announced on 6 January 2020 that the Article 7 procedures against Poland and Hungary, as they stand, are divisive and must be re-examined in order to find a less conflictual way of dealing with these matters. It will probably be up to the next EU-presidency to solve the problem — when Germany takes the helm on 1 July.

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