Germany, the Beleaguered European Island

By Ulrike Guerot

Germany's situation in the early-autumn days of 2011 seems oddly ambiguous, in a way that perhaps befits the strange economic and political times that the country - as well as Europe as a whole - is living through.

On the one side, prosperity and growth, a working democracy and a peaceable society, where problems are discussed and shared in a free media; on the other, a landscape of worries and doubt about the scale of Germany's (and the eurozone's) underlying financial problems, the direction of Europe itself, and the capacity of the current leadership (especially the chancellor, Angela Merkel) to deal effectively with these problems.

If it is hard to reconcile these contrasting images, it is also hard to choose between them - since both represent a genuine description of aspects of Germany's current reality. So to come closer to an understanding of Germany's real situation (and given its international position, that means the European Union and the eurozone's too), it is worthwhile pursuing the surface paradoxes a bit further.

The blessed island

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Germany does seem, at least from the outside, to be doing well. Its impressive economic growth rate, sustained in 2009-10 even in the midst of Europe's mounting currency and debt crises, even had to be managed downwards a little in 2011 - because (as finance minister Wolfgang Schäuble) stated, expectations had become too high.

China continues to be a valuable market for German engineering; Germany accounts for over 40 percent of European Union exports to China. Companies such as Siemens or the business-software group SAP have been posting double-digit growth rates. Some firms in southern Germany are desperately looking for qualified employees.

Indeed, the unemployment figures have been steadily falling, another impressive statistic in the context of wider financial woes. Even in previous years when joblessness was a blot on Germany's record, youth unemployment never exceeded 10 percent, let alone the dramatic highs of 30 percent-plus in Spain or Greece. All this is reason enough for the respected journal Foreign Affairs to publish an article about what Germany got right (see Steven Rattner, "The Secrets of Germany's Success", Foreign Affairs, July-August 2011).

In the public sphere too, Germany can to a degree claim to be defending standards that are weakening elsewhere. Its range of independent and varied newspapers producing quality journalism represents an important counterweight to the populist and reductive spirit of the age - and the character of its media may even be a factor in Germany having kept populism at bay (or at least the rise of a significant populist party of the kind that has grown in France, the Netherlands, central Europe and Scandinavia).

Again, the experience of Hungary (where press freedom is threatened), Italy (where the Berlusconi empire is dominant) and Britain (where oligopoly is routine) makes Germany's position here look impressive. From the perspective of a sea of troubles in Europe - colossal deficits, soaring unemployment, social fractures, populist resurgence - Germany can still appear an island of security and prosperity.

Many who might wish to agree with this assessment would point to the social and political textures that underpin Germany's industrial economy, so different from those of its neighbours, as the foundation of the country's success. The backbone of Germany's economic strength has been the Mittelstand (middle-sized businesses), especially in the engineering sector, where a multitude of these and smaller enterprises produce unique and therefore price-stable products for the global market.

They embody a still robust industrialised sector (in contrast to economies, such as Britain's, which are dominated by finance); draw on an educational system that for many years could produce a steady flow of qualified workers and employees, as well as people ready to enter elite professions; and are implanted in an economy with a high degree of decentralisation, where expertise is spread and an industrial ecology is part of the social fabric in many local communities.

In this respect there is a real link between Germany's federal political and institutional structure and its economic federalism. It is worth repeating that the post-1945 dismantling in order to prevent over-concentrations of power created the basis for the successes of subsequent decades (including the great test of reunification post-1989).

The European connection

Yet this is where the alternative portrait of a worried country begins to surface, for inside Germany the country feels far from an island of the blessed - and even its acknowledged strengths are regarded as newly fragile and under pressure.

An important part of the concern is the unprecedented increase in income inequalities, and the associated fear among the middle classes that a more liberalised and "flexible" economy would damage rather than benefit them. A great debate on the impact of an unequal society where the life experiences of the super-rich are ever more remote was sparked by Frank Schirrmacher - famous editor at the Frankfurter Allgemeine Zeitung (FAZ) - when he picked up the troubled reflections of Charles Moore, the equally arch-conservative English commentator, in the Daily Telegraph in asking "what if the left were right?" The controversy ran for days.

The fact that German intellectuals see in their country parallels with Britain's social experience is significant enough. A particular theme is the loss of social cohesion, a reality that tends to be valued only when it is vanishing - as many fear is currently happening in Germany. There is evidence of more young people being excluded from education, higher illiteracy rates, and greater low-level social disruption. These phenomena carry an obvious economic price. There is also a political price, in that among the disadvantaged any interest in politics or belief that politics can improve their lives is disappearing.

Erwin Teufel, the former chief minister of Baden-Württemberg, is leading the argument that the CDU - dominant partner in the governing coalition led by Angela Merkel - has, by pursuing a pro-market ideology, both betrayed the disappointed German Mittelstand and lost public support. The party's election defeat in the chancellor's home state of Mecklenburg-Western Pomerania on 4th September, the latest in a series of setbacks, reinforces at least the second element of Teufel's case.

Here, the argument over Germany's domestic conditions takes on a European dimension. For the decades-long alliance between the Mittelstand and the secure middle class it provisioned with skills and employment was the political base of Germany's moderate-right parties (Bavaria's CSU as well as the CDU); parties that governed Germany for most of the post-1949 decades, and largely carried the "European argument" in Germany, persuading voters that Germany is at the heart of European integration and that the process would benefit them.

That "European argument" is harder than ever to sustain when the European Union is divided and uncertain of its strategic direction, and when (accordingto the Allensbachpolling institute) some 70 percent of Germans say that Europe is no longer their future.

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Ulrike Guérot is a Senior Research Fellow and Head of the Berlin Office at the European Council on Foreign Relations.

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