- Hubert Walas
Germany at the crossroad.
The polity that lies between the Rhine and the Elbe has been an inseparable and crucial part of Europe's political landscape for nearly two thousand years. Beginning with the defeat of Publius Quinctilius Varus in the Battle of the Teutoburg Forest against a coalition of Germanic tribes in 9 AD, on through the state of the East Franks created by the Treaty of Verdun in 843, further still by way of the Holy Roman Empire and then Bismarck's Empire, which led to Hitler's Reich out of whose ashes arose Adenauer's postwar West Germany, which has now finally settled on today's Germany of Merkel and Scholz. During these many centuries, like an ebbing and flowing tide, Germany has experienced many moments of glory and power, as well as decline and humiliation. The final of which came in 1945. Since then, Germany has been on a path of continuous and rapid growth which was based on four pillars and has just reached a high point. Now, the entire German development model is in question.
Losers, yet Winners
Exports are the lifeblood of the German economy. This is a cliché, but it should be emphasized at the outset. Companies such as Volkswagen, Mercedes Daimler, BASF, or Siemens have extraordinary influence over the actions of the German government. Especially when Berlin's foreign policy is discussed. German business is based on industrial companies. Of the 30 largest German companies, more than 20 of them depend on two variables that are directly influenced by the German government's foreign policy. Firstly, we are talking about export policies which are about creating favorable trade conditions to sell German products in, for example, China or within the EU. Secondly, it’s about energy which is the German industry’s competitive foundation. Incidentally, the few remaining companies out of the 30 mentioned are organizations serving the efficiency of German industry inside Germany itself, so they are also inextricably linked to Berlin's foreign policy.
After the huge loss of World War II, on top of depressed morale, Germany was in a state of total economic collapse. According to the Madison Project in 1945, post-war German society was equivalent in wealth to that of 1880. The Allies, with fresh memories of two German-initiated world wars and genocide in the last, wanted, in an expression of ultimate disapproval, to more or less wipe Germany off the map. The Morgenthau Plan, named after then-U.S. Secretary of the Treasury Henry Morgenthau Jr., called for the territorial dismemberment of Germany and the dismantling of Germany's industrial potential, so that the country would effectively become a pariah and one big farmland. Nonetheless, although the plan initially gained some traction, it quickly collapsed. This is because Washington realized that a strong and rebuilt West Germany would be far more useful - as a buffer and shield, and perhaps even also as a sword, against the newly powerful Soviet Union. The Germans, at least the West Germans, although they lost the war, in practice, they actually won it, or at the very least, luckily found themselves on the right side after. This is unlike the Czechs and Poles who won, but found themselves on the wrong side after. And this is one of the clearest examples of how utterly amoral geopolitics can be.
Instead of the Morgenthau plan, Germany got the Marshall Plan, to which they were admitted in 1949. Although it should be noted that this did not have a decisive influence on Germany's post-war growth. A year later, the dismantling of German industry by the Allies ended, while West Germany became one of the founding countries of the European Coal and Steel Community. Then in 1955, West Germany joined NATO. And so, in ten years, the international situation of the country on the Rhine did a full 180 and laid the foundation for its future growth. The first two pillars of German foreign policy were also emerging. The first is the re-emergence of German manufacturing and shipping products “Made in West Germany” worldwide. The second is dependence on the US in security matters which the Americans simply forced on the Germans. This imposed pacifism, industrial focus, and opening up to European and world markets resulted in rapid economic growth: the Wirtshaftswunder, or “the miracle on the Rhine.” Between 1950 and 1960 alone, German purchasing power increased by 73%. From then on, West Germany had one of the strongest economies in the world.
Fast forward 30 years: the Soviet Union collapses, and German reunification becomes reality. German politicians are quick to see this as having multi-pronged potential. Here we must highlight at least three phenomena that overlap almost completely.
Perfect Conjunction
First, as early as 1990, the initial negotiations began for the countries east of Germany to join the European Union which 14 years later resulted in the largest expansion of the EU. German industry, having a long-standing comparative advantage in know-how and capital, quickly penetrated these markets by creating an industrial base of simple components serving the core located on the Rhine. On the other hand, this allowed the backward Central and Eastern European countries, after nearly five decades of communist rule, to surge economically. The V4 countries - Poland, the Czech Republic, Hungary, and Slovakia – are the most important trading zone from Germany's perspective. Currently, trade with these four countries far exceeds Berlin's trade with China, Germany's single largest trading partner.
A second chance is also opening up for German politicians and industry. Although theoretically, overnight, Russia turns into a democracy, and this is key to energy-intensive German industry. Natural gas exports from the Soviet Union to West Germany began as early as the 1970s. The Germans helped the Soviets build their gas extraction industry and in return, received gas on preferential terms. As a result, the payment system was designed to give gas a competitive advantage over other fuels in the German energy sector.
Under different banners but with the foundations of cooperation already built, the two countries entered a new reality in the 1990s. From 1990 to 2020, gas exports from Russia to Germany tripled from 20 bcm to 60 bcm. However, the new post-Soviet reality also created new problems for West German-Soviet and later German-Russian rapprochement. The pipelines through which Germany was getting its gas now ran through the territory of new entities, Ukraine and Belarus, as well as those that Moscow no longer controlled, i.e. Poland. Russia wanted to deprive its neighbors of this leverage over its policy. Germany wanted to further strengthen its industry's competitiveness based on cheap Russian gas. The result of this coherence of interests was the Nord Stream pipeline, joined in time by Nord Stream 2. The projects gained momentum despite years of opposition from Ukraine, the US and Germany's allied states inside the EU, including Poland and the Baltic States. Both projects aimed to divert all Russian gas from the southern pipelines, i.e. Yamal and Brotherhood pipelines, to the Nord Stream offshore pipelines. In bypassing the problematic countries, Russian gas was to go to Germany and, in Berlin's vision, be distributed to the rest of Europe. Both projects, first advertised as purely commercial, would later be cited as cornerstones for the eventual Russian invasion of Ukraine.
Here we come to the third landmark event that shaped German politics as we know it today. In 2001, the People's Republic of China entered the World Trade Organization. The world's most populous country fully opened up to Western products, factories, and finance. At the time of this accession, German exports to China amounted to about $10 billion. Yet already in 2002, Volkswagen set a record by selling 513,000 vehicles in China. Twenty years later, German exports to China increased 12 times and today amount to $120 billion. German imports are growing even more. Today, trade between the two countries is a whopping 245 billion euros.
All the events of the past two decades are primarily due to one actor, or rather actress, Angela Merkel. For 16 years, the German chancellor pursued the German national interest as best she could. All four bases of German success have functioned like a well-oiled machine. In the east, German industry giants created a geographically close hinterland of cheap labor and intellectual power. Russian gas, negotiated by Merkel, flowed in a wide northern stream. German industry penetrated the receptive Chinese market. And all this was happening just as it had 70 years earlier, under an American security umbrella despite Washington's outright opposition to the construction of the Nord Stream pipelines and to German rapprochement with China. And so it was with a sense of duty well done that Angela Merkel stepped down on December 8, 2021. It seemed that Germany's strategic course was perfectly calibrated and the successors of "Mutti Merkel" need only continue the policies of their predecessor. Two months later… Russia's war with Ukraine erupted… changing everything.
If we were to evaluate the Merkel government's policies from the perspective of serving the national interest, she would most likely receive the highest possible marks. The population's wealth boost, regional and global influence growth, and a steady increase of competitiveness vis-à-vis its neighbors while not exaggerating antagonism. Such would have been the assessment if we had carried it out by February 23, 2022. However, history never stops, and today's assessment of Berlin's policies must be much harsher.
So let's go back to the beginning and consider how the four pillars of German politics, mentioned earlier, look in the new reality.
Mercantile Call of Endless Growth
First, the American protectorate. Initially forced, it later proved to be a savior for Berlin which now had a pacifist ideological underpinning. Germany invested in the defense industry, but only with an eye to exports and this was confirmed by dramatically low military spending. For years during its hegemony, Washington did not pay too much attention to this inverted dependence. However, as the Americans began to feel more pressure from China and Russia, Washington realized that Germany, not them, benefited from the current status quo. What's more, Berlin in defiance of the Americans, was moving closer and closer to both Moscow and Beijing. Even before the war, the White House likely had several reproving talks with Germany as Berlin's rhetoric at times changed, as was evidenced by Annegret Kramp-Karrenbauer's pro-American speech. Nevertheless Berlin, in general, tried to settle comfortably at a sweet spot: the American-Chinese-Russian one. But what did the war uncover? Berlin was surprised to discover that its army did not represent serious combat value and quickly announced an investment of 100 billion euros. However even more painfully, Berlin quickly realized how deeply dependent Germany's security was on the Americans. Meanwhile, the lack of real military power in turbulent times like the current decade severely degrades Germany's ability to influence the region. Aside from modest military and financial assistance, Germany has virtually no influence over events in Ukraine.
The evaluation of the second and third factors, the German sphere of influence in Central and Eastern Europe and dependence on Russian gas must be examined together. It’s already clear that the full bet on Russian gas has been a spectacular failure. Forced by global pressure and its public, Germany announced it would give up Russian gas by mid-2024. Russian dependence has brought a powerful threat not only to Europe, but especially to German industry - the apple in every Chancellor’s eye, especially Merkel’s. This subordination to the Kremlin has made and continues to make Berlin wriggle indecisively during the current war. Politicians of the younger generation, less connected to the industrial establishment, such as Foreign Minister Anna Lena Baerbock, call for a tough approach vis-a-vis Russia. Nevertheless, Germany is further dominated by the party of "trade above all" whose main representative is Olaf Scholz. The Chancellor is verbally trying to declare as much aid to Ukraine as possible while, on the other hand, bureaucratically setting up months long delays to the announced military aid. Other mercantilist politicians are even calling for the immediate return of Russian gas to Germany as soon as the war ends. This policy of Berlin is being observed with great disapproval in Poland, Ukraine, and the Baltic States, among others. So much so that Warsaw and Kyiv started to think about a creation of a post-war bloc of states whose unifying interest would be deterring Russia, relying on Anglo-American power projection and speaking with a common, stronger voice on the international stage. Depending on what nations would join the alliance, we are talking about a potential of 80-100 million people. So demographically matching or even surpassing Germany. Leaving aside the chances of success of such a project, such an arrangement is inevitably judged in German cabinets as threatening their dominant position in the region.
When two pillars of German politics are shaking in their foundations, and the third, i.e., energy, has completely collapsed, Berlin is trying to save the fourth. Here it doesn't help that, like Russia, it too is based on an authoritarian regime.
The end of October and the beginning of November showed Germany's tribute to the Chinese. First, the German government allowed Chinese giant COSCO to buy a 24.9% stake in Hamburg terminal operator HHLA. The distaste was not changed by the fact that the approved purchase is smaller than originally planned - it was to be 35% - and does not give the Chinese a key voice in strategic decisions. Chancellor Scholz, a former Hamburg mayor, did so despite objections from coalition partners and six ministries. The Foreign Ministry, led by Annalene Bearbock, stressed that the investment disproportionately develops Chinese influence in the German and European infrastructure system and increases Berlin's dependence on Beijing. All this comes at a time when much of the Western world is signaling a growing loss of confidence toward China.
Just over a week later, Scholz showed up in China, taking with him an entourage of 12 CEOs of German industry giants, including Volkswagen, Siemens, and BASF. Scholz went to China even though he would have met with Xi Jinping at the G20 summit shortly thereafter. The problem is that, despite a few acts of defiance, Berlin's actions are again one-dimensional and involve the complete subordination of interests to the next regime. Beijing has made no secret of its intention to occupy Taiwan peacefully or not. What will happen if an invasion of the island eventually occurs? German investments in the Middle Kingdom and the supply chains based on them are worth hundreds of billions of euros. Volkswagen alone has more than 40 factories in China, and BASF in Guangdong province has announced investments of €10 billion only this year, while Audi and BMW are also investing heavily in China.
Berlin's foreign policy is primarily guided by the interests of its industry. This is, at first glance, not necessarily a wrong path, for a strong industry means a rich society. And looking through this prism, an assessment of German policy until February 23, 2022, would be excellent. However, history never ends. What happened the day after and in the following months has forced us to conclude that, after 30 years, German politics is on the verge. Almost all critical domains of the state have been subordinated to foreign players and are dependent on them. Security, on the Americans. Energy, on the Russians. Trade and industry, on China as well as the countries of Central and Eastern Europe which are fast losing trust in Berlin and are thinking of creating their own center of power. This happened even though Berlin had alternative paths and the potential to develop them, but driven by the mercantilist call of endless profit, it chose to ignore them.
The lion's share of responsibility for this state of affairs rests with Angela Merkel, but fortunately for Merkel and unhappily for Scholz, the bill for this disaster has been delayed. Now Scholz is trying to rescue the situation, but this rescue is no different from the actions that created this problem in the first place.
Germany's history over the past 30 years shows us one thing. The mercantilist government, whose foreign policy is focused solely on supporting domestic industry, is a dangerous path. Yes, in times of prosperity and geopolitical autopilot, such a policy served the German industry, and it fueled a wealthy society. However, the problem with such a strategy lies in the divergence of horizons and perspectives of the state and businesses. The nation-state aims to look after the welfare and security of its citizens over the longest possible time horizon and to anticipate the various situations that may arise from the policies that the state pursues over a 20, 50, or even 100-year period. In contrast, a company, especially one of such size as the German hegemons, may have long-term strategies, but it puts profit first. Here and now. So Germany has taken over the goals of its industry leaders, ignoring the many geopolitical risks that lay ahead which are often not relevant to non-state actors. Unfortunately, Chancellor Scholz's actions concerning China, or nuclear power, show that Germany continues to think in terms of the previous era of "Wandel durch handel" / "trade brings change."
Sources:
https://rujec.org/article/55478/
https://geopoliticalfutures.com/german-foreign-policy-for-sale/
https://www.foreignaffairs.com/germany/germanys-ukraine-problem
https://foreignpolicy.com/2022/10/31/germany-olaf-scholz-china-investment-problem/
https://wpolityce.pl/gospodarka/616438-niemcy-nadal-patrza-w-przeszlosc
https://www.geopoliticalmonitor.com/germanys-geopolitics-at-a-crossroads/
https://www.reuters.com/markets/deals/german-cabinet-approves-investment-by-chinas-cosco-hamburg-port-terminal-sources-2022-10-26/
https://archive.ph/WRxhm
https://archive.ph/WJf2l
https://edition.cnn.com/2022/11/03/business/germany-china-olaf-scholz-visit-trade/index.html
https://www.gisreportsonline.com/r/china-germany-relations/
https://ip-quarterly.com/en/protecting-eden-or-dark-new-geopolitics-fortress-europe
