Angela Merkel’s tenure will be remembered as Germany’s, and Europe’s, cruelest paradox. On the one hand, she dominated the continent’s politics like no other peacetime leader — and is leaving the German chancellery considerably more powerful than she had found it. But the way she built up this power condemned Germany to secular decline and the European Union to stagnation.
Wealth-Fueled Decline
There is no doubt that Germany is today stronger politically and economically than it was when Merkel became chancellor back in 2005. However, the very reasons Germany is stronger are the same reasons why her decline is assured within a stagnating Europe.
Germany’s power is the result of three massive surpluses: its trade surplus, the structural surplus of its federal government, and the inflows of other people’s money into the Frankfurt banks, as a result of the slow-burning, never-ending euro crisis.
While Germany is swimming in cash, courtesy of these three surpluses, this cash is mostly wasted. Instead of being pumped into the infrastructure of the future, public or private, it is either exported (e.g., invested abroad) or used to buy unproductive assets within Germany (e.g., Berlin apartments or Siemens shares).
Why can’t German companies, or the federal government, invest these rivers of money productively within Germany? Because — and here lies part of the cruel paradox — the reason these surpluses exist is that they are not invested! Put differently, under Mrs Merkel’s reign, Germany made a Faustian bargain: by restricting investments, it acquired surpluses from the rest of Europe, and the world, that it could then not invest without forfeiting its future capacity to extract more surpluses.
Looking deeper into their origin, the massive surpluses that empowered Germany under Mrs Merkel are the result of forcing German and, later, European taxpayers to bail out Frankfurt’s inane bankers on condition of engineering a humanitarian crisis in Europe’s periphery (Greece in particular) — a means by which Merkel’s government imposed unprecedented austerity upon both German and non-German workers (disproportionately, of course).
In short, low domestic investment, universal austerity, and turning proud European peoples against each other were the means by which successive Merkel governments transferred wealth and power to the German oligarchy. Alas, these means also led to a divided Germany that is now missing out on the next industrial revolution within a fragmenting European Union.
Three episodes offer insights into how Merkel exercised her power across Europe to build up, step by step, the cruel paradox that will be her legacy.
Episode 1: Pan-European Socialism for Germany’s Bankers
In 2008, as banks on Wall Street and in the City of London crumbled, Angela Merkel was still fostering her image as the tightfisted, financially prudent Iron Chancellor. Pointing a moralizing finger at the Anglosphere’s profligate bankers, she made headlines in a speech in Stuttgart where she suggested that America’s bankers should have consulted a Swabian housewife, who would have taught them a thing or two about managing their finances. Imagine her horror when, shortly afterwards, she received a barrage of anxious phone calls from her finance ministry, her central bank, and her own economic advisers, all of them conveying an unfathomable message: Chancellor, our banks are bust too! To keep the ATMs going, we need an injection of €406 billion of those Swabian housewives’ money — by yesterday!
It was the definition of political poison. As world capitalism was having its spasm, Merkel and Peer Steinbrück, her Social Democrat finance minister, were ushering in austerity for the German working class, advocating the standard, self-defeating mantra of belt-tightening in the middle of an almighty recession. How could she now appear in front of her own members of parliament — whom she had for years lectured on the virtues of penny-pinching when it came to hospitals, schools, infrastructure, social security, and the environment — to implore them to write such a colossal check to bankers who until seconds before had been swimming in rivers of cash? Necessity being the mother of enforced humbleness, Chancellor Merkel took a deep breath, entered the splendid Norman Foster–designed federal Bundestag, conveyed the bad news to her dumbfounded parliamentarians, and left with the requested check.
At least it’s done, she must have thought. Except that it wasn’t. A few months later another barrage of phone calls demanded a similar number of billions for the same banks. Why? The Greek government was about to go bust. If it did, the €102 billion it owed German banks would disappear and, soon after, the governments of Italy, Greece, and Ireland would probably default on around half a trillion euros worth of loans to German banks. Between them, the leaders of France and Germany had a stake of around €1 trillion in not allowing the Greek government to tell the truth; that is, to confess to its bankruptcy.
