Wednesday, 8 May 2013

A grown up Germany needs a new partner

Modern Germany (the Federal Republic) is now 64 years old, which is pretty young in comparison to most other nation states in Europe.  But for this adolescent state the question of maturity is becoming important as Europe looks for leadership and a new sense of direction.  Angela Merkel has done a sterling job over the last 2 years in corralling the broken Southern Eurozone states into recovery mode.  However, there is a subtle difference between crisis management and business as usual.  Whilst countries like Spain, Italy and Greece have had no option today, they may be less inclined to kowtow to Berlin in the future. 

Peering back to the birth of the Euro it’s now obvious that the economic dominance of German was masked by the huge burden of reunification, which in 1999 was still weighing the German economy down.  Unfortunately the strictures of reunification had the effect of tuning the German economy to maximum productivity; and this has been the main structural issue within the Euro.  The productivity gap between German and all other Eurozone economies (save Benelux) created the Euro crisis.  Whilst German cornered the Euro export market its less productive partners used the low interest rates, that German reunification required , to borrow beyond their means.  The result has been extraordinary industrial growth in German matched by extraordinary public sector growth and private debt in the less productive states.

It’s has been suggested that Germany is unable to accept the burden of responsibility that flows from its relative economic strength.  This renunciation comes from its obvious and unfortunate recent history and justifiable worries around Germany lacking the experience and leadership skills to match its economic strength.  But above all else the real problem has been the inability of the French to pick up the challenge of reunification.  A successful Europe has always depended on a balance between Germany’s privately owned industrial model and a competitive, semi-publicly owned, French alternative.  Now the French model has been found-out we have all learnt to our cost that you can’t build a temple with one column. The French economy is shot and with no sign of structural reform all hopes for a stable Eurozone have turned to dust.  

What Europe needs is a counterweight to German industrial prowess, and without this there will be no peace, no Eurozone and no EU.  Casting around the Eurozone for alternative ballast is an unprofitable exercise?   Whilst it will be deeply unfashionable to say this, the obvious and only answer is to balance German industrial dominance with the UK’s equally mighty service industries; with these two towers of strength a mighty temple could be constructed.  And here is the opportunity for David Cameron, if he is genuine about his desire to renegotiate our contract with Europe (Germany), he may find that he is pushing on an open door.
Marriage made in heaven

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