May 2, 2010
The Reemergence of German Dominance in EuropeBy Peter Glover and Michael J. Economides
The European Union was supposed to change all that, but it is a hard-boiled geopolitical maxim that nationalism trumps transnationalism whenever national interest -- military, economic or energy -- is at stake. Unfortunately, for Europeans, it is a fact of life which Europe's leaders have consistently ignored, with historically disastrous consequences.
While romantics, mostly liberals, like to dream about universal love, human selflessness, and the benevolence of transnational governance, national big hitters just keep batting them back to earthy reality. While the EU may believe its $40-billion bailout offer will buy desperately needed breathing space, the greater battle to harmonize the "un-harmonizable" -- sixteen vastly differing Eurozone economies -- is the far bigger story. Of even greater import is Germany's growing "fifth column" status in European politics, a direct corollary of its reemergence to political dominance in the new Europe.
A Greek Tragedy in 3-D: Debt, Deficit, Default
Though the political EU is made up of 27 member-states, only sixteen are signed up to Eurozone monetarization. But a Eurozone crisis has been brewing since Greece's economic free-fall from grace stemming from the general economic vulnerability of the southern states, those affectionately known as PIGS -- Portugal, Italy, Greece, and Spain (though Ireland too is normally included). While the spectre of economic debt, deficit, and default stalks all of these, the Greek economy is, at least for now, the weakest. It may appear exaggerated on the surface. After all, the Greek economy accounts for 2.6% percent of the Eurozone economy. But the interesting issue is that the Greek situation, if not resolved convincingly, will bring to the surface what many suspect and many others see clearly: a serious economic vulnerability in a Europe suffering from (just to name a few) enormous demographics problems, inability to grow economically, and suffocation by entitlements.
The immediate crisis was set in motion when Greece finally decided to admit that it had "misrepresented" (lied about) for years the extent of its debt and that it needed to borrow over 50 billion euros ($66.5 billion) to avoid bankruptcy before the end of 2010. But the root of the crisis is firmly bedded in the soil of Eurozone regulations for disparate economies -- a one-size-fits-all financial straitjacket. As a result, Greece's deficit is running at a rate four times higher than the Eurozone rules allow. The trouble is that Greek politicians were paralyzed into inaction.
There are the rioting Greek street mobs, but those are a tiny group of mindless anarchists. Many other demonstrators fail to see why they should pay for the incompetence of the nation's profligate politicians and dishonest bankers. Tax evasion was rampant. In a recent study by the current Greek government, it was found that fewer than 1,500 Greeks were reporting incomes larger than 100,000 Euros. Greece's deficit, having been recently revised up to nearly 13 percent of GDP, now threatens not only Greece defaulting on its loans, but the whole stability of the European Union project.
However, the debate is not just about the Greek economy and management; it goes to the heart of how the EU is run and what the whole experiment really means. Talk of a rule-changing Constitution and a new European Monetary Fund (an EU version of the International Monetary Fund) does not sit well with Europe's three major economies -- Germany, France, and Britain. In Britain, a new Constitution would be an impossible sell. Meanwhile, in Germany, an increasingly disillusioned electorate and political elite have simply had enough of picking up the tab for southern Europe's laggard economies.
By late March 2010, as the Greek financial crisis worsened, Germany, Europe's largest economy, had made it clear that while it would play the EU unity game, it would do so on its own terms, and that meant no EMF slush fund -- especially one with Germany as the largest contributor. By mid-April, as Greece's approach to the bond markets was palpably stalling, the new EU President, Herman Van Rompuy, felt impelled to steady jittery markets by reiterating the EU's pledge of a bailout for Greece. That meant one thing: the EU must go cap in hand to the IMF. The resulting agreement to offer Greece a $40-billion loan (it is not clear how much will actually come from the IMF) at around 5 percent interest is now on the table. While Greek ministers initially claimed that they would not need to pick it up, most investors believe they will have no choice. The investors were right. On April 25, Greek PM George Papandreou formally asked the IMF and EU to activate their joint bailout rescue package.
So for the moment, while the promise of bailout may forestall fears of an imminent Eurozone collapse, the crisis itself has thrown into stark relief a seismic change in the anatomy of EU "unity." While the European Central Bank -- the former German Central Bank -- is content to act as Europe's banker, that no longer means that it is content to act as its chief investor and financial guarantor. It's a fundamental change that overtly exposes the EU's political frailty on the global stage, particularly its ability to keep its own house in order. But, just as significantly, it reflects Germany's "fifth column" status in Europe, too, as it now regularly subverts EU policy in its national interest; indeed, something we applaud. When it comes to key national security -- energy and otherwise -- all EU states need to consider extracting themselves from the politicized machinations of a transnationalist governance that, like the U.N., operates on the basis of the lowest common denominator principle, that being often against national interest.
The Russo-German "Special Relationship"
We have written elsewhere (see next link below) about the growing Russo-German trade and energy ties that have progressively usurped EU policy. Germany's penchant for cutting unilateral oil and natural gas deals with Russia, for instance, runs entirely counter to the EU's critical policy to escape the grip of Russian energy dependency. Clearly, while Germany talks the talk of EU unity, in reality, it is inclined to walk the walk all the way to Moscow to secure a more realistic national energy future, one that is far more pragmatic than that offered by the EU's absurdly optimistic alternative energy strategy. Indeed, Germany's so-called "Green" Chancellor had no compunction in green-lighting Germany's new generation of 26 coal-fired power stations, carbon storage or no carbon storage.
Most iconic, however, is how the Russo-German "special relationship" has consistently attempted to sabotage EU moves aimed at ending dependence on Russian oil and gas through what we have termed "The Nabucco Conspiracy." The Nabucco pipeline, due to begin construction in 2011, is still without a viable supply of natural gas. Yet Nabucco continues to be cited by European ministers as the key to European diversification away from Russian energy dependence. With Nabucco's future still uncertain, Russia has proceeded apace with its plans for the Europe-bound Nord and Sud Stream pipelines, with German connivance.
On April 9, Russia's Gazprom began laying over 1,200 kilometers of the Nord Stream pipeline. At the launch were Vladimir Putin and Nord Stream's chairman and former German Chancellor, Gerhard Schröder. Herr Schröder has proved a redoubtable choice as chairman of Nord Stream, with his still powerful ties to Angela Merkel's administration, as well as a vital cog in Russia's "divide and conquer" energy strategy, when it comes to cutting energy deals with European states. These are states that inexplicably have an aversion to having their lights go out and heat turned off, and who have zero confidence in the EU's unrealistic energy policies.
More significant on the global stage is how increasing Russian energy dependency for European states is likely to prove a foreign policy game-changer, and one that does not augur well for future EU relations with the United States. It seems that though the EU ship of state(s) sails under an independent flag, the ship will continue to be Russia-fueled, with the German-dominated European Central Bank acting as rudder.
The Greek Tragedy: A Symptom of the Failure of Transnational Governance
It is a fact of geopolitical life that as a single culture will come to dominate wherever multiculturalism is trumpeted, so the largest national economy too must dominate wherever transnational governance is attempted. Margaret Thatcher saw the EU's Achilles heel from the start. In 2003, in her opus "Statecraft," Mrs. Thatcher noted how European Union enthusiasts preferred the expression "the United States of Europe." Mrs. Thatcher warned, "The parallel is deeply flawed and deeply significant. It is flawed because the United States was based from its inception on a common language, culture, and values -- Europe has none of these things." Thatcher added, "By contrast, 'Europe' is ... a classic utopian project, a monument to the vanity of intellectuals, a programme whose inevitable destiny is failure; only the scale of the final damage done is in doubt." Germany's contemporary reemergence as the dominating European power is not only likely, but has always been inevitable.
It is the irony of ironies that a European "supra-state" wholly conceived for the express purpose of suppressing German nationalist ambition should end up, within just two decades, in Germany's economic thrall.
The importance of how nationalism will always trump trans-national governance is dealt with in greater depth in "Energy and Climate Wars: How naive politicians, green ideologues and media elites are undermining the truth about energy and climate" by Peter C. Glover and Michael J. Economides, to be published by Continuum Books in September 2010 and now available for pre-sale here at Continuum and here at Amazon.