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Is Merkel squandering Europe's strong economy?

21 Jun 2017 - 10:06
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In this publication Clingendael's Head of Europe in the World unit Rem Korteweg reacts to the question 'Is Merkel squandering Germany's strong economy?' This reaction is part of Carnegie Europe - Judy Dempsey's Strategic Europe: Judy Asks. Besides Rem Korteweg five other experts answer a new question from Judy Dempsey on the foreign and security policy challenges shaping Europe's role in the world: Fredrik Erixon (Director European Centre for International Political Economy), Michael Heise (Chief economist Allianz SE), Christian Odendahl (Chief economist Centre for European Reform), Alan Posener (Writer/columnis Welt media group, and Stephen Szabo (Nonresident fellow American Institute for Contemporary German Studies at Johns Hopkins University).

Chancellor Angela Merkel has used Germany’s economic clout to maximize the country’s power in Europe. Today, few decisions can be made without German consent, while German unilateral steps invariably impact the rest of the EU. But power is a means to an end, and what end Merkel has in mind remains unclear.

Three issues stand out. First, Germany’s massive current account surplus is a major drag on eurozone demand. But in a transactional EU, it is also a major source of German bargaining power. How much will Merkel ask for in return for shifting Germany’s economic course?

Second, Germany’s predominance means Chinese and U.S. relations with Europe are increasingly reduced to discussions with Berlin. The annual meeting between the German and Chinese cabinets is arguably more consequential than the EU-China summit; and U.S.-German trade spats have the potential to infect transatlantic relations at large. Such reductionism will worry other European capitals and threatens to undermine EU cohesion. Despite outside incentives to the contrary, Germany must rigorously keep working through Brussels.

Third, geopolitics abhors an imbalance of power. With the Brexit talks under way, and French President Emmanuel Macron aligning himself with Merkel, Europe’s balance of power is shifting. Germany’s predominance may trigger a balancing response from other EU members. Paradoxically, German strength doesn’t make it any less tricky to keep the other EU capitals together.

The full text of this publication can be found here.