Delusional Germany

BERLIN – In recent days, Germany’s representative on the European Central Bank’s governing council has expressed strong disagreement with the ECB’s decision on November 7 to cut its benchmark interest rate. Now the European Commission has opened an investigation into whether or not Germany’s huge current-account surplus is causing economic damage in the European Union and beyond. This investigation and criticism of Germany’s export-based growth model has incited outrage in Germany. Is Germany becoming a scapegoat for Europe’s problems, or is it really out of step with the EU and the world economy?

Germans have long been among the most europhile of peoples, but their mood has gradually been turning against Europe and its common currency, the euro. An openly anti-euro political party has emerged, and, though it did not make it into the Bundestag in September’s general election, it has fertile ground to grow. This is tragic, because Germany should be driving the development of a persuasive vision for Europe’s future.

Three illusions are responsible for the German public’s growing aversion to European integration – and for many Germans’ failure to understand that Germany has the most to lose from the euro’s collapse.

For starters, Germans are convinced that they have weathered the crisis extraordinarily well. Although GDP growth slowed sharply in 2009, it recovered quickly; Germany’s economy is now 8% larger than it was then. Likewise, the has fallen throughout the crisis, reaching 5.2%, the lowest level since reunification. And the German government’s commitment to fiscal consolidation enabled it to achieve a surplus last year; by 2018, the fiscal surplus is expected to amount to 1.5% of GDP.

Such figures have fueled the perception that Germany’s economy is booming, and that its future would be even brighter if the eurozone’s weaker economies were not dragging it down. But, viewed from a longer-term perspective, Germany’s economic performance is actually rather disappointing. A shows that, since the monetary union’s launch in 1999, Germany has recorded some of the eurozone’s lowest rates of GDP and productivity growth.

Moreover, real wages have barely risen; for more than 60% of German workers, they have actually fallen. Wages have risen substantially more elsewhere in Europe, despite the depth of the economic crisis. Given that Germany also has one of the eurozone’s lowest investment rates, its GDP growth is likely to be among Europe’s slowest in the coming years, making significant wage increases unlikely.

Of course, Germans are not entirely wrong; the crisis in Europe’s periphery is weakening Germany’s economic-growth prospects. But they should remember that, only a decade ago, Germany was the sick man of Europe, and that strong growth and dynamism elsewhere in Europe contributed substantially to its recovery. And they must recognize that Europeans are all in the same boat; what is good for Europe is good for Germany, and vice versa.