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Germany’s six month presidency of the European Union in the second half of this year could hardly come at a more important moment. As the EU’s largest and most financially powerful member, Germany must rediscover its earlier role as leader and mediator. By doing so, it can help hold the organization together, something also very much in its own interests.

To do this, however, Berlin must face up to the EU’s conflicts, both internal and external. Germany faces three challenges in Europe, all given new urgency by the coronavirus pandemic. It must reestablish cohesion within the EU, bridging the gaping divide between its northern and southern member states; it must stand up for democracy and the rule of law; and it must strengthening the EU’s international role.

Germany’s six month presidency of the European Union in the second half of this year could hardly come at a more important moment. As the EU’s largest and most financially powerful member, Germany must rediscover its earlier role as leader and mediator. By doing so, it can help hold the organization together, something also very much in its own interests.

The presence of COVID-19 in Europe was confirmed early this year. However, since the EU had no relevant powers in health policy, early countermeasures took place on local, regional, and national levels. Basic freedoms of movement within the EU were restricted overnight, in partial contravention of European law. Twelve countries, including Germany, closed their borders. In early March, Berlin imposed an export ban on personal protective equipment (PPE) for medical staff, while the French government requisitioned face masks. The absence of declarations of solidarity, let alone practical assistance, gave rise to profound political disappointment. The early response, in other words, was dominated by national unilateralism, bringing back memories of the eurocrisis.

However, the EU has shown itself capable of correcting course. Management of the outbreak was quickly taken up at the highest levels, more rapidly than during the financial crisis. The European Commission instituted weekly coordination meetings. There were joint rescue flights for European citizens stranded overseas. Coronavirus patients were transferred between EU countries. Once common rules on exporting medical supplies outside the EU had been established, most governments lifted export bans within the single market. European companies began to manufacture face masks and ventilators, while the Commission introduced the joint procurement and stockpiling of medical materials.

As with the financial and migration crises, the early months of the COVID-19 crisis showed that removing internal EU borders only works when accompanied by policymaking at a European level.

Basic Freedoms at Risk

The EU’s “common area of freedom, security, and justice” was created to support cross-border mobility and interconnection. For this integrated space to survive intact, health protection must be guaranteed as a pan-European public good, with open borders balanced against the need to protect the public.

If common health policy instruments are lacking and national health systems cannot successfully deal with the pandemic, the basic freedoms of the internal market will be cancelled out. Moreover, the EU will lose public trust if it can neither defend against dangers to public health nor come to the aid of struggling member states, helping them to help themselves.

Now, as Angela Merkel put it, the EU must confront “the greatest test it has faced since its foundation.” Insufficient preparedness in public health will now be followed by the continent’s most serious economic crisis since the Great Depression of 1929. All industrial nations seem likely to fall into recession in the first half of 2020, with long-lasting and painful consequences for their social fabric.

In March alone, Spain lost over 800,000 jobs, with unemployment expected to soon approach 18 percent. Italy, too, will likely face unemployment well above 10 percent. In France, after four weeks of lockdown, a quarter of all private sector workers are on reduced hours, with half of the economy at a standstill. The crisis threatens to hit Central and Eastern Europe just as hard.

Strengthening the Economy

Cushioning the economic crisis and the resulting social damage will thus be another crucially important responsibility of the German EU presidency that starts in July. This will initially mean rolling back restrictions on the internal market and ensuring that crisis-driven health policy does not undermine the EU. Some governments will take a greater role in industrial policy, seeking to guarantee essential food supplies and critical infrastructure. This could mean a new wave of nationalizations, as well as a more flexible interpretation of EU subsidy rules.

Despite facing the greatest economic crisis in the history of European integration, the EU needs to develop common approaches and principles in order to minimize national protectionism and reestablish European competition principles once the virus dies down. At the same time, it will be all the more important for a united EU to pursue its own global interests, with member states acting together as a common currency area, as well as on trade policy and investment regulation.

The German presidency must also address the question of additional financial cushioning. Short term liquidity has been made available through the European Central Bank and €500 billion in new financial instruments at the disposal of the European Commission, the European Investment Bank and the European Stability Mechanism. Nonetheless, fresh money will probably need to be put on the table to prevent a resurgence of tensions between northern and southern European states. Negotiations on the EU’s next “multiannual financial framework”—due to be finalized under the German presidency—may see a revisiting of more expensive policies, triggered by the COVID-19 crisis. Any revision to the EU budget would likely prioritize investment in research, technological competitiveness, and health protection, as well as measures against climate change.

Finally, the German presidency will also look to use greater international cooperation to alleviate the negative impacts of national austerity. Defense policy will be one such key area. Uncoordinated budget cuts could weaken the pooling of national defense capacities, as they did in the aftermath of the 2008 financial crisis. For this reason, Berlin will likely encourage its NATO partners and the EU to focus on defense capability, the arms industry, and their general technological competitiveness in light of the pandemic.

Social Resilience

In spite of the financial efforts undertaken by the EU, it is quite possible that the virus’s economic and social effects will promote political instability and undermine social resilience. That will intensify Europe’s vulnerability to hybrid threats. The post-2008 era saw populists, many opposed to the EU and to globalization, take their place in parliaments and even in governments. The Hungarian prime minister Viktor Orbán has used the coronavirus as a pretext to strengthen his autocratic power. Like Hungary, Poland is the subject of an EU investigation, triggered by its judicial reforms. Former Italian prime minister Enrico Letta has warned that his country could become the “Hungary of the eurozone” if Europe fails to offer adequate assistance. Even before the crisis, popular support for the EU in Italy was on the decline. In Spain, the position of Pedro Sánchez’s minority government could be significantly weakened.

At a time of increasing political polarization, weakened social resilience and  burgeoning foreign influence, basic democratic principles and the rule of law must be more actively protected across Europe. Along with existing European procedures against member states, the EU budget will be a key instrument: spending should be dependent on states upholding human rights and democratic principles, in addition to the rules of the internal market. At the same time, we must keep close tabs on how technology is used to monitor the virus, ensuring it complies with basic European rights. The definition of common criteria for ending the state of emergency will be another concern.

Europe’s vulnerabilities will need particular attention if the European economy collapses while China enjoys a comparatively rapid recovery. In a bid to boost its foreign influence, China could make liquidity available to selected European companies, banks, and governments, buying up strategic elements of European supply chains, including in Germany. The question of how much protection the EU and national governments should offer domestic companies will thus be highly political.

The coronavirus has made Europe’s international context even harder to assess. Under Donald Trump, the United States continues to undermine the structures of the international order, for example by the president’s recent decision to stop US funding for the World Health Organization. Meanwhile, reaction to the crisis has sharply highlighted the systemic conflict between China and the West. Its ongoing power struggle with China is taking the United States further down the path of isolationism. But Europe must also think about its own future supply chains, deciding which elements should be based on its own territory, particularly in pharmaceuticals and other systemically vital sectors.

No Way Around Conflict

As the international system continues to gradually unravel, the pandemic has shown the importance of close cooperation on health policy. When Germany takes over the EU presidency on July 1, it faces the acutely important task of driving short-term crisis management in the EU and among its member states. But it must also continue to develop European and international instruments able to cope with the challenges confronting us. The aim should be for Europe to emerge strengthened from the crisis. To achieve this will inevitably mean conflict, both within the EU and in its relations with other countries.

For this reason, Berlin cannot limit itself to the role of honest broker, the typical approach of the country holding the EU presidency. Germany, France, other members states, and the presidents of the various EU institutions must all energetically promote European interests and the core principles of the Union. Only in this way will it be possible to lead the EU through these complex and testing times.

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We live in troubled times. Compared to the rather static geopolitics of the Cold War, today’s geo-economic confrontation between the United States, China and Europe is a far more dynamic phenomenon. What is at stake is securing influence outside of one’s own territory by using geo-economic instruments to reinforce one’s own power position. To this end, governments are attempting to control data streams, financial and energy flows, and trade in industrial goods and other technologies. Asymmetries in the international system are increasing. To maintain or to regain the capacity to act, Germany and Europe must engage in comprehensive strategic rethinking.

Change in Four Dimensions

Economic power has always been a decisive element in the international power system. Economic strength, combined with state monetary policy, represents the material basis on which to develop military capacities. At present, however, the relation between economic strength, state power and influence in the global system is being transformed along at least four dimensions.

First, reciprocal dependencies—“interdependencies” —were long regarded as a stabilizing factor within the international system. Now, however, they are seen as contributing to growing uncertainty. Entanglements of trade and investment, along with ever longer supply and value chains, have considerably increased the vulnerability of many states, as well as their susceptibility to blackmail in foreign economic activities. The trend has affected weaker developing markets but also highly-developed open economies.

Second, we can observe increasing shifts in power and greater asymmetries in the international economic and financial system. This is partly driven by the return of protectionism, but the systemic conflict between the Western world and authoritarian regimes also plays a role. Another factor is the extremely heterogeneous adoption of digitalization and technological revolutions across different regions and countries: this has also fueled shifts and imbalances in economic power.

A Tool of Political Strategy

Competition to control crucial new technologies—artificial intelligence, cloud computing, quantum internet, 5G—has long been under way. Strength in innovation and technological advantage are directly relevant to security questions. Even in the energy sector, technical know-how and market leadership have a strongly political component, as well as an economic one: this is particularly the case with low-carbon technologies. Battery manufacturing and intelligent electricity networks are also good cases in point.

Third, the interdependence of economic, technological and security dimensions now determines states’ scope for action in traditional foreign policy areas and in foreign economic policy. Take the global extension of supply chains and systems of value-creation. These originally received political support, since they were regarded as a development opportunity for countries with low price levels. If components were produced in low-cost locations, or so went the idea, it was certain to benefit the manufacturing companies, the countries where production was located, and consumers in importing countries.

Fourth, inter-state conflicts are less and less a question of military action. This is primarily due to decreasing social acceptance, above all in Western societies, of traditional patterns of military conflict. The shift means that events like Russia’s violent takeover of the Crimea or the war in Syria are now the exception and not the rule. By contrast, we are seeing a sharp increase in countries’ deployment of economic and financial instruments to strengthen their power base, including outside their own territory.

The overall picture changes, however, when foreign direct investment increasingly becomes a tool of political strategy. This could lead to a debate in which implications for security policy overshadow questions of the social impact of globalization.

Parmesan and Irish Butter

A striking example of a simultaneous pursuit of economic and foreign policy interests is US foreign policy under president Donald Trump. The revised US National Security Strategy, published in 2017, equates economic security with national security, and makes the former an explicit element of foreign policy. This has formed the basis for legislation limiting foreign direct investment, like the 2018 Foreign Investment Risk Review Modernization Act. Takeovers of American companies can now be selectively prevented on national security grounds, as in March 2018, when the US government blocked an attempted takeover of semi-conductor maker Qualcomm by a Singaporean firm.

To correct its vast trade deficits, the US has imposed tariffs on imported goods. Restricting flows of imports is intended to force compliance on the part of the foreign country in question. This is why the Trump administration has gradually racked up tariffs on Chinese goods, now totaling almost $550 billion, affecting a large proportion of all US imports from China. Against the EU, the US government imposed special import duties on steel and aluminum. Since October, new US tariffs have also hit a further range of European products, including German and French wine, parmesan cheese from Italy, Spanish olive oil, and Irish butter.

These sort of trade disputes can quickly have an effect on other economic flows, including relations between currencies. In response to punitive US tariffs, China is allowing the renminbi to weaken against the dollar. This aims to negate, or at least minimize, the effects of the new US tariff policy. As a result, the euro has considerably strengthened against the renminbi since April 2019, a trend which already has a negative effect on exports to China from eurozone countries, above all Germany.

China’s Power over States and Companies

China is also pursuing another model of geo-economic power projection. Its Belt and Road Initiative (BRI) creates economic dependency that can then be turned to political purposes. The means China uses to this end are many and various: investment, agreements on raw materials and trade, energy, and infrastructure projects in Europe, Asia, Africa, and Latin America. The strategy is already working: in the UN Security Council in June 2017, Greece blocked an EU motion condemning human rights abuses in China. The previous year, Cosco, a semi-state Chinese shipping firm, had taken a majority holding in the important Greek port of Piraeus.

And there is another emerging theme for German firms to come to grips with. China not only tightly controls and spies on its own society and economy, its social credit systems and lack of data protection are forcing foreign companies to adhere to standards at odds with Western ideas of good governance and data protection.

Of course, the US and China are not the only powers using economic means to achieve political goals. Russia, for example, makes very precise use of its energy resources and infrastructure to stabilize its own political alliances and to drive wedges into other groupings. The Nord Stream 2 project is one prominent instance. The undersea gas pipeline between Russia and Germany, now at an advanced stage of development, has given rise to substantial tensions within the EU and NATO. Germany insists on its sovereign right in economic policy, emphasizing the importance of good relations with Russia. Berlin’s allies, however, continue to warn of probable German overdependence on Russian natural gas, while also criticizing how Nord Stream 2 routes gas supplies around Ukraine, depriving that country of its most important bargaining chip.

Globalizing the Power Struggle

This is a clear example of how the use of geo-economic instruments can make it difficult for Western countries to support reform processes in non-democratic or non-market-oriented states. Other examples include the founding of the Asia Infrastructure Investment Bank, largely at the behest of China, and the creation of the New Development Bank, established by the BRICS states. Both banks were created by non-Western states as counterweights to the still-dominant Bretton Woods system. Since their credit-granting decisions are no longer subject to the conditions imposed by the West, the new supranational banks undermine the norms and standards established under the old financial order.

In addition, Brazil and South Africa are using state-owned banks and companies to develop asymmetrical relations with neighboring countries. In the Middle East, oil-rich states like Qatar and Saudi Arabia use direct financial transfers to expand their regional influence.

For decades, economic relations underwent steadily intensifying globalization. However, today it is possible to discern new and contrary trends. If great powers like China and the United States weaponize economic instruments such as tariffs, investments, sanctions, currency manipulation, and energy and data flows, there will be far-reaching consequences for the international economic system. The same is true of new control mechanisms like the screening of foreign direct investment, the partial unbundling of global supply and production chains, and new interventionist state industrial strategies, functioning on both regional and national scales.

This change is all taking place in a world economy currently experiencing weak growth, with central banks playing an ever larger role, and with debt continuing to rise. All of these developments create increasing interdependency, and also a larger number of potential targets. Geo-economic instruments are deployed in this way to bolster states’ power positions, in turn changing the basic framework of both the world and regional economies. These changes demand a substantial rethinking of states’ scope for action and the effectiveness of classical foreign and security policy.

Open and Vulnerable

Of all countries, Germany is particularly badly hit by these trends. According to the Federal Economics Ministry, the German economy has an openness index of 87.2 percent, making it the most open of all the G7 states. Around 28 percent of German jobs are directly or indirectly dependent on exports. For manufacturing industry, the figure is as high as 56 percent. Moreover, in 2017 German direct foreign investment reached a new high, at €1167 billion, with the United States its largest recipient.

In the other direction, direct foreign investment into Germany also hit a new record that year, totaling €741 billion. In this new geo-economic context, the openness which once served as Germany’s growth guarantee and the basis of its prosperity now puts the country in a particularly vulnerable situation. Moreover, this fact now sets new limits on its foreign policy options.

In 2018, Germany’s most important export partners were the United States, France, China, the Netherlands and the UK. Its most significant import partners were China, the Netherlands, France, the United States and Italy. This constellation demonstrates the difficulty confronting Germany in any escalating Chinese-American rivalry. China is a key guarantor of Germany’s economic model, but despite severe differences of opinion between Berlin and the current US administration, close trans-Atlantic relations remain crucial for Germany, in security cooperation, economic and financial relations, and in the confrontation between democratic and autocratic systems.

In other words, the political and economic aspects of geo-economic “statecraft” have to be considered alongside strategic factors. Germany’s “National Industrial Strategy 2030,” recently unveiled by the Federal Economics Minister, is a step in this direction. But the ensuing debate has revealed deep-seated instinctive reactions, with divisions between supporters and opponents of state economic aid.

The discussion about Huawei’s access to the German 5G market suggests that the intersection between economic and security policies and the debate on fundamental values has seen only limited progress, doing little to reconcile short-term economic considerations with long-term strategic questions. In addition, the significance of geo-economics is still not widely appreciated in the German public sphere. According to a Forsa survey in April 2019, 60 percent of Germans are opposed to using the country’s economic power to achieve foreign policy goals.

Making Europe Competitive

In order to successfully assert itself within the new framework of geo-economic competition, Germany must contribute towards making Europe more capable of concerted action. The new European Commission has taken the first steps in this direction, by giving responsibility for a host of central geo-economic portfolios – economy, trade, the EU’s internal market, climate, competition and digitalization, as well as foreign relations – to a new set of Commission vice-presidents. The guidelines for the new Commissioners envisage Europe exerting greater sovereignty with regard to these issues.

However, concretely implementing this new policy, while also cooperating with member state governments, will present a serious challenge. As a prerequisite for any stronger stance toward the rest of the world, the EU and the eurozone must consolidate their internal relations and strengthen their own competitiveness. Thus, for example, to ensure that the euro can play a stronger international role as an investment and trade currency, EU countries must deepen the banking union, move toward a capital market union, and create a shared safe European financial asset.

To reduce dependency on technology from non-EU states, Europeans must improve overall conditions to encourage greater competitive capacity in high-tech fields. Europe must develop its own technological strengths, a prerequisite if the EU wants to establish worldwide norms in future technologies. Achieving this will require investment in research and development, using funds both from the EU itself and from the European Investment Bank.

Some welcome initiatives are already in their early stages, for example, the development of a European data cloud and the establishment of an overarching authority on security-critical technology infrastructure, analogous to the European Medicines Agency. The European Battery Alliance, established in 2017, brings together stakeholders from every part of the battery value-creation chain, and its voice will be listened to in negotiations on next Multiannual Financial Framework.

Two Trump Cards

Attention must be paid to protective measures as well as increasing competitiveness. Protection here could, for example, include more robust screening of foreign direct investment and skepticism when foreign state-controlled investors seek to acquire a stake in key German or European companies. In order to defend against secondary sanctions, like those imposed by the United States in relation to Iran, the European Council on Foreign Relations has suggested an EU-specific agency which could implement counter-measures to protect European industry.

The shaping of economic relations with important players in the new geo-economic world goes far beyond implementing shared trade policies. The European Union needs a clear strategy on which relationships should be cultivated in trade, investment, development, energy, climate, and security: specifically, with whom should it have close partnerships, with whom competitive relations and with whom good neighborly prosperity? To determine this, security interests and economic interests must be considered at the same time.

In this context, the EU can rely on two trump cards. First, the euro, which in spite of all its crises has never seriously had its value as a currency put into doubt. Second, the EU’s internal market, which can easily keep pace with the United States and China. Meanwhile, the current challenge for the EU is to activate the effectiveness of its market power, along with the political and military strength of the Union and its member states, while strategically protecting and developing its own geo-economic advantages.

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Traditionally, German foreign policy has been viewed and shaped through two prisms, that of the European Union and that of the transatlantic relationship. The country’s involvement in the EU and NATO, and its close cooperation and coordination with Washington have presented a normative frame of reference and practical operational framework for (West) German foreign policy ever since the 1950s. But now the cracks are starting to show.

For Germany, this means not to turn away from one organization or the other–on the contrary. In terms of economic, political, security and defense policy, Germany depends heavily on both and will continue to do so for the foreseeable future. This is all the more true as global institutions see their foundations shaken, paradoxically, by pressures from the United States. It will therefore be in Germany’s interest to make its relations with its European partners, and any resultant relations with the US, as targeted and resilient as possible.

A Question of Global Governance

In today’s rapidly changing world order, Germany’s European agenda has become more multi-faceted than in previous decades. While initially, it was about deepening and expanding the EU, now crisis management has increasingly been pushed to the fore.

To this day, Germany’s EU policy is an expression and consequence of the fact that Germany and Europe require a reliable international regulatory framework in order to secure peace, stability, and prosperity. However, at a time of rapid international change and growing strategic competition between great powers, this policy is becoming part of a more comprehensive form of global governance. As international institutions and laws are being called into question, notably by the US, this has become a pressing task for a middle-sized power with powerful international ties–a task that cannot be achieved alone. If Germany wants to help shape the discourse on an international level, it can only do this effectively–if at all–with the help of its European partners and through the EU.

At this point, three priorities emerge for Germany’s European policy. First, the community’s inner workings must be improved and its future as a cohesive whole secured, rendering it stronger in the global race between economic regions, political systems, and from a security and defense perspective. Second, it must fend off external influences and attempted divisions, thereby improving conditions for joint action on foreign policy. Third, it must safeguard the influence of the EU and its member states in the further development of international laws and organization.

Improving Resilience

Today, European politics is no longer a matter of the voluntary realization of a grand integration project, the “ever closer union” that was envisaged by the Treaty of Rome of 1957. The pressing task at hand is to adapt and integrate existing achievements–such as the eurozone, the single market, and passport-free travel within the Schengen area–to make them sustainable. This must be addressed despite the political climate which has seen polarization increase significantly both within and between member states, in part due to the rise of right-wing populist parties.

For a decade, Germany’s European policy has focused on the North-South divide. The financial and economic crises, which rippled out of the US and toward Europe in 2007-08, and the subsequent economic, banking, and national debt crises deepened economic rifts, making political differences in the eurozone all the more stark. Those showed in disputes over appropriate political responses, open criticism of Germany’s approach, and harsh polemic in the Greek and German media. The antagonism between donor and debtor nations which has pervaded the eurozone since 2010 is undoubtedly no longer a simple matter of north and south. It has long borne traces of an East-South divide: as previous and potential recipients of support and in light of their lower income per capita, some central and eastern European and Baltic members of the eurozone view national developments, such as those in Italy and Greece, with suspicion and consider them deeply irresponsible.

A new debate has arisen over legitimacy. On the one side, governments and societies criticize “the politics of austerity” and European controls over national political decisions on domestic and economic matters as too extensive; on the other, there are those who consider non-compliance with common rules and agreements in the eurozone to be illegitimate and divisive.

Uphold the Rule of Law

If we are to attain better socioeconomic cohesion and acceptance of the common European economic system, the balance between legal compliance and political action, between solidarity and personal responsibility, must be rejigged. This would entail a review of the basic regulations of the single market and the eurozone as well as improvements to the cross-border functioning of the capital, goods, services, and labor markets. These are the tools required to provide a stabilizing effect if neither monetary policy nor market mechanisms are able to guarantee the adjustments required in the event of asymmetrical shocks.

Germany and France are expected to continue working on developing instruments for macroeconomic stabilization. Another important step is to agree on a financial transaction tax, which would provide the EU with tax-based budgetary resources, as well as measures to combat tax dumping through harmonization of corporate taxes. Additional important steps for supporting growth and convergence include greater support from structural reforms, European research and innovation initiatives to support the digital revolution, and work on the European capital markets union, aiming to improve financing options in the EU.

In recent years, increasing reference has been made to an–at times discernibly–growing rift between the East and West within the EU. The discourse on Europe in some central and eastern European nations is particularly vehement in its prioritizing of questions of identity and sovereignty. Criticism of the EU is often combined with a radical rejection of migrants of a Muslim background. The Hungarian and Polish governments push explicitly illiberal democratic models and must be held accountable for violations against the principles of the rule of law and democracy.

Beyond the East-West Divide

The dichotomy between models of liberal Western democracy and society and openness toward more integration on one side and models of illiberal democracies and societies as well as isolationist politics and criticism of the EU on the other can no longer be reduced to a fault line between East and West. It has long been the case that parties in almost all EU member states have formed and succeeded in speaking for those who feel they have lost out to globalization, see no benefits to stronger cooperation in Europe, and push for a return to the nation state. As uncomfortable as it may be, these forces must be integrated into the discussion regarding the future of Europe, and they must be challenged to formulate their own ideas in a concrete way.

Euroskeptic, often populist parties and movements receive external support, be it from Russia or the US, for instance from the former head of the Breitbart News website Stephen Bannon, with a view to weakening Europe from within: with targeted propaganda, the dissemination of fake news, and support from the extreme right and left. They reject greater European cooperation, pushing instead for an identity-based nationalism. It is crucial to the EU’s future to be able to fend off the external influences which seek to divide it, undermine its ability to act, and weaken democracies and democratic powers.

For decades–and to its own advantage–the US has supported the integration of Europe and worked toward a close transatlantic relationship. The current US president has called the transatlantic alliance into question, triggering incentives for cooperation and integration within the EU, such as in matters of defense. Washington continues to send political signals which could, or may even be intended to, undermine European unity.

Germany now has the task of tackling interference from Washington and strengthening the EU, as Washington’s negotiating partner, in those areas where Brussels has a claim to representation, such as in trade policy. When it comes to defense, it is not a matter of strengthening cooperation between Europeans “against Washington,” as is often surmised. It’s a case of strengthening Europe’s capabilities within the context of NATO and, in doing so, increasing its contribution to the alliance.

Strategic Dilemma

In the case of China, defending against interference and reducing dependence while maintaining close relations is a real balancing act. Following strategic investments, among other moves, China has developed considerable influence within the EU and must be viewed as a potential threat. Defense strategies such as screening investments or utilizing political criteria for procurement are not enough–particularly as measures developed to ban Chinese investments in strategic industries are limited in their effectiveness if Chinese businesses are operating through European companies.

China’s perceived strength is also an expression of Europe’s weaknesses. Germany and the EU’s innovative powers are waning, and they are investing too little. This trend shows the EU’s strategic dilemma particularly when dealing with the crises in the eurozone. China made strategic investments in Portugal and Greece. During the crisis, the governments of these countries understandably allowed Chinese money into the country. Considering Germany’s own economic development, this is a rational short-term strategy, as long as Germany and the EU underinvest structurally.

However, the medium-term impact on the EU and the member states is only gradually becoming clear. When it comes to the EU or the UN, governments of countries in receipt of considerable investment from China consistently “toe the line” dictated by Beijing. Indeed, in 2017 Greece blocked a joint EU declaration on China before the UN Human Rights Council, and Hungary refused to sign an EU statement on the arrests of lawyers in China. Similarly, Greece and the Czech Republic advocated watering down EU regulations on controls on Chinese investments.

A Creator of Order

The European economic debate’s narrow focus on consolidation instead of investment has other, occasionally dramatic effects within the context of global power shifts, strategic competition, and rapidly advancing technological developments. Europe is at risk of falling behind the US and China in the race for artificial intelligent and biotechnology. The most successful online portals have long since ceased to be European ones. Significant sectors of the automobile industry are feeling the pressure; Germany has lost industries such as consumer electronics, telecommunications, computing and solar energy. A boost in European potential for growth and innovation and therefore the preservation of Europe’s economic powerbase is required to strengthen cohesion within the EU and make it possible for it to take on a formative role. This applies especially to new sectors such as artificial intelligence, cyber security, and other fields with basic regulatory requirements.

In light of its economic model, its traditions, and the orientation of its values as concern foreign policy and its understanding of itself from a security perspective, Germany has indicated that international laws and institutions will remain essentially functional. New regulatory frameworks will be established in order to, for example, keep up with the pace of technological developments. Another sensible aim of German’s European policy is therefore to strengthen Europe’s international role, enabling the EU to have an impact on shifts in the world order.

Germany’s Role at the United Nations

Germany has committed to using its temporary seat on the UN Security Council to represent European interests. Symbolically, it is sharing its presidency with France for the first time. Its top priority is to take an active role in the vital discussions surrounding UN reform–especially with the US, which may withdraw from more UN organizations, or reduce funding for them.

Germany’s strategy as regards its seat on the UN Security Council is to be viewed within the context of further efforts to give the EU a more powerful voice on the global stage. The German government supports majority decisions in EU foreign policy in order to make the likelihood of a decision being reached more probable. However, a unanimous decision must first be made regarding the change in this voting model. Due to the external influences mentioned above, it is also highly unlikely that the EU will actually take this step; at best, it will first identify individual fields in which a majority decision can be reached.

Finally, Germany should assume the role of an engine in the further development of civil crisis management, in European collaborations on defense within the Permanent Structured Cooperation (PESCO), and in smaller formats. As cooperative efforts on defense intensify, one must also anticipate criticisms that Europe is working “against the US,” if, for example, it promotes its own industrial defense projects. This insinuation must immediately be countered with the fact that the initiatives are taking place within the NATO framework.

Hanging in the Balance

Germany also has an important role to play in intra-European discourse, as some central and eastern European states in particular view themselves as considerably dependent on the US. Together with France and other EU partners, Germany needs to engage in deeper strategic talks to develop a common understanding of the changing challenges, its own and more common goals, and the instruments required to achieve them. With this in mind, European partners require more than to simply establish the necessary forums and processes between themselves. A crucial factor will be whether a genuine interest exists on both the German and the other side to enter this highly political discussion in an honest and committed way, in order to make Europe more capable of acting strategically.

Germany’s European policy must get to grips with a paradox: in light of international challenges, European cooperation has never seemed so important, while the centrifugal forces at work within the EU have never been so great, strengthened as they are by strategically exercised external influences. Together with France, Germany must work on solutions to enable the EU to deal with the challenges–both internal and external–which can no longer be denied.

Over the past couple of years, both countries have demonstrated to differing degrees that they recognize the signs of the times. If they run on sight, and if red lines are considered more important than developing strategic courses for action–be they in matters of the eurozone, defense or enlargement policy–then the shifting internal and external environment will continue to shrink the scope of European policy. Part of the discussion must focus on how Europe can secure and build on its remaining strengths and which options for power it can develop in order to avoid becoming a plaything–or worse, one plaything among many–in a world of strategic competition and zero-sum game thinking. To guarantee its resilience and power to act in international affairs, Germany and its EU partners must invest much more in the internal cohesiveness of the EU.

Just over two years ago, Germany’s mantra for its European policy was that the EU would make it through the age of Brexit with its 27 states intact. London’s attempts to conduct talks with a view to reaching an agreement on the side, in the interests of German industry based in the United Kingdom, fell flat in Berlin. The aim was to make any attempt to copy the UK seem unappealing and to ensure that its threats to leave did not change the fundamental principles of the EU.

Greater Flexibility

From the German perspective, it still makes sense to define the reference group for discussions surrounding the future of the EU as participants in the single market. It also remains the correct approach to hold fast to two principles: first of all, the freedoms of the single market and the European legal system, including the Copenhagen criteria on democracy and the rule of law, are and remain the basic principles of the EU. Second of all, the EU institutions must be protected and strengthened in their contractual duties, especially following this year’s European elections.

Nevertheless, there are grounds for greater flexibility in European cooperation. Europe is ultimately only a persuasive power by virtue of its success. If the system remains in a self-blockade, it will be necessary to work together to solve the problems in smaller groups of countries. In doing so, the edges of the community become blurred: as the EU struggles to differentiate itself internally, opportunities arise to cooperate more closely with neighbors, with the UK as a former EU state and with candidate countries. Brexit will contribute considerably toward making the future conversation on some topics, such as security and defense policy, more a matter of the creative role of Europe rather than that of the EU.

To preserve the internal cohesion of the EU, or at least that of the eurozone, Germany must show a greater willingness to compromise on economic organization and finally agree to the creation of stabilizing instruments and a greater sharing of risks in return for mechanisms which exert effective pressure on national politics. This will come at an acceptable price, considering the enormous benefits Germany derives from the existence of the euro, its functionality, and the single market. Together with France, Germany must also press ahead with discussions on the EU’s competitive position. The ban on the merger between Siemens and Alstom rail operations has made it clear that this must include not just a strategic research and innovation policy but also a discussion about an industrial and competition policy which looks to the future.

The Age of Minilateral Relations

Diplomatic efforts must be reinforced when it comes to seeking compromises and building a sustainable consensus. A new age of bilateral and minilateral relations began just a few years ago, when there was talk of reducing or even withdrawing German embassies from EU partner nations because involvement in EU structures and voting mechanisms had become so close. This sought to prevent future mishaps like the failed attempt to impose a migrant quota system, to understand developments in member states and the scope of their governments, and to campaign better for the EU’s own position and identify common preferences. For some of Germany’s important partner states, such as Poland and France as much as the United Kingdom, intensive bilateral relations must be maintained very consciously in order to (re-)establish mutual trust and identify common strategic goals. That France must be listed here shortly after the signing of the Aachen Treaty is evidence of the extent to which even these formerly close partners have become estranged.

The first indications of a rethink of European policy are evident in Berlin. Previous approaches, such as the “Likeminded Initiative” or #EuropeUnited will not be enough. Plausible political proposals and pioneering efforts are still needed in light of the comprehensive challenges at hand. This may be due to the chaotic situation in the EU or a recognition of the fact that our national interest may be deeply at risk if we do not come to our senses and lead the way with a crucial willingness to lead, take action, and engage in dialogue. If it turns out to be “too little, too late,” it is Germany and Europe who will pay the price.

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With Britain’s departure from the EU, a pillar is breaking off. But the structure will remain standing; the decision-making system in Brussels is working. The European economy has taken off again and is currently growing nearly as fast as that of the United States. The fears of 2017—that right-wing populist Marine Le Pen would be elected president of France, for example—have not materialized. Instead, Emmanuel Macron governs in Paris as a pro-European political entrepreneur. The European Commission has presented to the member-states a roadmap that lays out how to deepen and strengthen Europe. In July the European Council is expected to adopt conclusions regarding the reform of the eurozone, at least for the necessary completion of the banking union, and cooperation on migration policy.

Yet under the surface the EU has grown porous. Many no longer view it as a broadly appreciated laboratory for ever-closer cooperation between governments and the integration of societies. Nationalist and euroskeptic voices are growing in some member states; Hungary and Poland are arguing with their European partners about reforms that undermine the rule of law and aim to dismantle democracy. In some places, the bonds of trust between member-states and EU institutions are under serious strain. This all makes new steps toward integration difficult.

The underlying changes behind these developments began well before 2015. But it was the EU’s perceived loss of control during the migration crisis that caused old borders to be drawn anew. The uncertainty and angst that can be felt in many places has made moderate political decision-makers hesitant. Right- and left-wing populists are stronger in many countries; authoritarian ideology is accelerating the crisis of liberalism, of the political and economic principles on which the EU is based. Those who now want to move forward with European integration have to do more than explain why the European Union was first created. Leaders have to explain to citizens what the EU is good for in a new, more convincing fashion, and underpin their words with concrete policies.

The EU faces a paradox: Hardly anyone—with the exception of Macron—dares to propose courageous initiatives for integration. But at the same time the need for a strong, capable Europe is as glaring as never before, for the world around us is changing. The US, Europe’s security guarantor for decades and the guardian of a Western-liberal world order, is raising questions about its role as Europe’s greatest ally. Simultaneously the conflict with Russia has taken on dimensions that no one since the end of the Cold War would have thought possible. China, meanwhile, is working consistently toward the implementation of its plans for supremacy—with political and economic consequences for Europe.

For the first time in the history of European integration the EU is being intentionally undermined from the outside. It is relatively easy for China and Russia to exploit smoldering intra-European conflicts, especially as China is financing necessary infrastructure in weak regions. In this way Beijing is creating dependencies and securing influence over EU decisions.

Meanwhile Russia’s misinformation campaigns, election interference, and support for radical forces is destabilizing democratic systems and adding fuel to the growing conflict between democratic and authoritarian models of society. Even the US president is provoking the European Union with his confrontational stance on trade and support for populist trends. For Germany, the task of leading Europe is therefore becoming more and more complex: In addition to the existing North-South and East-West divides within the Union, the bloc is facing the larger dilemma of how to position itself on the world stage when its partners are no longer standing so firmly by its side.

The Need To Act

These challenges all make the mission of holding Europe together even more complex and urgent. Holding together, though, cannot simply mean persisting with the status quo. In two areas, it is clear that incomplete integration can lead to regression and even to the undermining of the entire European project. First, there is the Schengen Zone. The creation of a shared space without controls is a European achievement with many positive results for Europe’s citizens. However, the removal of internal borders did not go hand in hand with an equivalent strengthening of European-level competences in the field of internal security. The elimination of borders led to a perceived loss of control, especially during the refugee crisis.

The eurozone followed a similar pattern. With the move to shared monetary policy and restricted budgetary policy, the member-states lost tools for governing that have yet to be completely replaced by EU-level instruments. Though crisis management and significant governance reforms have been successfully undertaken in parallel since 2008, when the financial crisis spilled over from the United States, the eurozone is still not sufficiently stable, nor is it able to take full advantage of the current economic growth. Against this backdrop it is not surprising that the EU is a scapegoat for negative developments in a national or global context that have little to do with Europe. The challenge for integration is therefore to produce an ability to act and to provide security, in both the classic and the economic sense of the word.

The Franco-German Engine

The question is who is going to take on the leadership role. Macron has taken a clear position. For months Paris has been waiting for a response to its president’s comprehensive agenda for the EU, just as Germany waited for France in the years before. It is now high time for a joint initiative to take strategically important decisions for Europe’s future. A date is set, at least for the eurozone: Proposals for reform will be presented at the European Council at the end of June.

Macron’s ideas present a challenge to Germany. Berlin worries that a rapid deepening of the currency union could drive a wedge between eurozone states and non-eurozone states. Paris sees the currency union as a “natural core;” some call for even smaller formats of cooperation. France bears a certain skepticism about the EU’s eastern enlargement, and that has shaped its vision for how, and in which constellations, European integration should move ahead. Germany, on the other hand, has significant economic interests in the new eastern member-states: Because of lower labor costs and tax rates, German businesses have successfully relocated large parts of their production and opened up new export markets. So there are economic as well as political reasons for Germany’s desire to include the eastern partners in further steps toward integration. Moreover, Germany fears that if these partners are not included, anti-European and authoritarian tendencies in some countries could grow stronger.
Following her journey to Paris, Merkel’s second trip after being sworn in for her fourth term in office was to see Polish Prime Minister Mateusz Morawiecki. And the coalition agreement contains—right after the section on France—a section on the “special meaning” of the German-Polish partnership, as well as a call for the revival of the Weimar Triangle, a close cooperation between Germany, Poland, and France.

Berlin has closely involved Warsaw in discussions for European reform, a clear signal that the country takes its role as a bridge builder seriously. Together with Hungary, Poland embodies the current political challenges of the East-West divide. To understand this tension solely as a conflict of values would overlook several other aspects. It remains questionable whether Poland will be a reliable partner with regard to proposed European reforms. But from a German perspective, it continues to hold a key position in the EU’s East. Despite the recent reelection of Viktor Orbán, Hungary is not strong enough on its own to promote the centrifugal renationalization movement and undermine European values.

Macron has developed a few ideas for how to complete the monetary union. Many of them are in line with the proposals from the European Commission: A budget for the eurozone, a corresponding finance minister, and a eurozone parliament should be added to existing structures. Most of these proposals have met with skepticism in Berlin. They entail a stronger mutualization of risk, an idea that does not garner much support in Germany. But since the beginning of the currency union, no French president has set such a leading example with reforms in his own country, nor been so aligned with German views on the importance of responsibility among member-states.
Readiness to Compromise

Berlin, too, will have to show a readiness to compromise—which does not mean giving up its principles. For example, instead of a stand-alone eurozone budget, the EU could create a line for the eurozone in the Multiannual Financial Framework (EU budget). A euro finance minister would then (at best) only be useful from a German perspective if monitoring national budgets was also part of this job. Spending more on investment would almost certainly find support in both countries—and incentives for the structural reforms that Germany advocates could be attached to that investment. There could, however, be disagreement over which member states benefit from an investment fund: Just eurozone countries, as Paris envisions—or all of the EU-27, as Germany could advocate.

French proposals for automatic economic stabilization mechanisms (such as an European unemployment insurance) that help to offset counter-cyclical divergences in the eurozone do not spark much enthusiasm in Berlin either: From a German perspective, the causes of economic divergence within the eurozone are primarily structural. An intensive dialogue between Paris, the new government in Berlin, and other eurozone countries is needed, because there continue to be different understandings of what happened in the course of the euro crisis and which approaches are suitable to ensure to more convergence and growth.

Questions of legitimacy have always arisen in Germany when other eurozone members have not stuck to the jointly agreed fiscal criteria. Others question the legitimacy of the common currency in the reverse scenario—namely, when a strong set of European rules prevents a country from taking an individual approach to national economic recovery. So a consensus could emerge that the rules, as they are written in the Stability and Growth Pact or the European Fiscal Compact, must be simplified and more consistently applied. Yet precisely because enforcement will always remain a political issue, Berlin will almost certainly advocate for stronger market discipline, for example by insisting that the transformation of the European Stability Mechanism into a European monetary fund is paired with the creation of a legal framework and procedure for sovereign defaults.

A Franco-German compromise will have to make possible a better interaction of market discipline, balancing of risks, and risk reduction. This is clearly shown by the case of a European deposit insurance system, a necessary step toward completing the banking union. From a German point of view such a system is only acceptable if banks’ balance sheets are cleaned up and national banks are better supervised.

A Broad European Agenda

While the new German government has yet to answer Macron’s proposals, its readiness to take integration forward is already apparent. The coalition agreement states that the common foreign, security, and defense policies must be strengthened. The establishment of Permanent Structured Cooperation (PESCO) in December 2017 is a significant step in this direction. France supports close foreign policy cooperation but it values institutionalization and new frameworks less than quick voting and the ability to act, if necessary outside of the EU framework

The extent to which Germany can enhance the EU’s international role depends on whether the coalition government can improve Germany’s defense capabilities. In the German domestic debate, it needs to emphasize that the country’s EU and NATO partners clearly desire greater German engagement in security and defense policy. It remains to be seen whether France, with its rather traditional understanding of defense, is ready to meet Germany halfway and further develop the EU as a civil power, and whether Germany will evolve in terms of its strategic thinking and its actual readiness to launch operations. Together, both countries should prepare the upcoming Council conclusions and build bridges to member states that look skeptically at Germany and France. The continent needs European solutions for better border security, a common asylum policy, and the redistribution of refugees, but also for the long-term approach to migration. On this issue Berlin has to take on a more robust mediating role. The potential for conflict is great, as the situation in Italy shows.

Berlin and Paris, then, face the comprehensive challenge of bringing the EU forward, and at the same time bridging the gaps between North and South, East and West. This balancing act requires diplomatic skill and a readiness to compromise, as well as considerable political energy and a readiness to lead. A letter from “the Hanseatic League,” a group of eight eurozone and non-eurozone countries led by the Netherlands, spoke out against eurozone reform at the beginning of March, a preview of challenges to come. In order to move away from confrontation and toward constructive dialogue, it will be necessary to involve all partners early on in the process and reach a fundamental understanding on problems and shared interests.

Germany has to keep in mind throughout that it is in its own best interest to support the stability of the European Union and the eurozone. This justifies higher investments in the EU—both political and financial. It is now about making the success story of the last 60 years future-proof.

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© REUTERS/Michaela Rehle

Munich Security Conference chairman Ambassador Wolfgang Ischinger didn’t waste time, delivering a warning in his opening speech: “The red alarm lights are blinking.” According to Ischinger, the risk of interstate conflict has never been this high since 1989. A tense international security situation set the tone for this year’s MSC, and neither Europe nor the United States seemed to have any plan to address the threats facing them both.

These risks were spelled out in brutal detail in the course of the conference: the situation in the Near and Middle East, North Korea, the risk of cyber warfare, the spread of weapons of mass destruction, the growing power of illiberal superpowers. The clearer the picture of the dangers facing the West became over the three days, the more worrisome the lack of any concrete strategy to minimize these risks. The West, which finds itself locked in conflict with illiberal states, seems to be paralyzed by complex challenges and deep divides within its own camp.

EU Governments Are Ready to Cooperate

Over the first two days, discussions focused on the state of the European Union and NATO; PESCO, or “permanent structured cooperation,” a defense framework the EU launched last year, was one of the central themes. The EU defense initiative, which will also coordinate funding in EU member states, was spurred by three developments: first, reduced confidence in the USA since the election of President Donald Trump; second, a need to demonstrate the resilience of the EU in the face of Brexit; and third, a desire to better coordinate the growing defense expenditures the EU states were making in the course of meeting the “2 percent of GDP” goal NATO demands.

The criticism of PESCO that has been expressed in recent weeks also appeared in both official statements and informal conversations in Munich—an unpleasant surprise for Europeans, who had assumed that the USA would see a strengthening of the EU’s defense capacities as a step in its own interests. This fact was pointed out by NATO General Secretary Jens Stoltenberg, who said that “stronger defense cooperation in Europe is not an alternative to NATO,” and stressed that the non-EU members of the defense alliance would not be at a disadvantage; after all, with the Brexit decision 80 percent of NATO defense spending will soon come from non-EU countries.

Some participants indeed thought they could see Washington’s fingerprints on Stoltenberg’s statement. The American government is concerned that the USA could lose access to the EU market and be excluded from future developments. In unofficial discussions, representatives of the smaller EU member states also worried that they themselves could be among the losers, in particular if the European defense industry should consilidate. So far, however, despite all criticism, PESCO remains a project the NATO planning staff is firmly committed to. At the same time, over the coming months and years it will need to be evaluated against the hopes that have been placed upon it.

Germany and France Seem Ready to Get Going

Additional ideas came from Berlin and Paris during the joint appearance by acting German Defense Minister Ursula von der Leyen and her French counterpart Florence Parly. Von der Leyen underlined the foreign policy stance of the recently concluded coalition agreement, saying “We want to remain transatlantic, but become more European.” She supported a “PESCO that would also serve European foreign policy”—that is, the possibility to proceed further as a smaller group that would make decisions by majority. Parly underlined the new level German-French defense cooperation had reached since the German-French summit in July 2017, both “operationally”, as in the stabilization operation in Mali, and in terms of its equipment and procurement. That being said, behind the German-French dynamic on stage, it was clear that differences of opinion remain. Parly highlighted the “European Intervention Initiative,” which is seen as something of a second priority to PESCO in Berlin. Germany wants to build up the EU’s capacities, while France wants to build up its own operational strength, leaving PESCO a less significant role.

On the following day, EU Commission President Jean-Claude Juncker underlined the EU’s “desire for independence” in its foreign and security policies, though he stressed that this was not directed at the US or NATO. He also expressed strong support for majority-based decision-making in these areas. However, appearances by new Polish Prime Minister Mateusz Morawiecki and Austrian Chancellor Sebastian Kurz made it clear that this enthusiasm is in no way shared throughout the entire EU.

Post-Brexit Cooperation with Great Britain Remains Unclear

British Prime Minister Theresa May’s speech brought long-hoped for clarification on a few issues related to the Brexit process. The Prime Minister suggested a security alliance between the EU and UK following Britain’s departure from the union. Within this framework, cooperation in the area of internal security would be continued, according to May. In saying this, she made an important concession: in cooperating with the EU authorities, London will “respect” the decisions of the European Court of Justice.

Despite these statements, May’s speech lacked a clear unifying message: While she did clarify that Great Britain was “unconditionally” committed to the defense of Europe, her warning that disunity would “damage both sides” revived fears that London would use its security assets as negotiating leverage. The general reaction to May’s speech in Munich was hence mixed.

The USA: Continuity Against Trump

The mission of US participants to the 2018 Munich Security Conference was clear: they needed to convince their NATO allies that the transatlantic relationship was sturdy, that guarantees made to allies were trustworthy, and that US foreign policy would maintain continuity. From the German side, the friendlier tones were welcomed, and acting German Foreign Minister Sigmar Gabriel warned in his speech that Germany would have to contribute more to making Europe stronger and more capable of acting on its own, and in doing so improve the cooperation with the USA. Europe cannot shape the world or defend the liberal order that it has profited from by itself, according to Gabriel.

General H. R. McMaster, US President Donald Trump’s national security adviser, delivered a mostly “classic” pro-transatlantic speech: he stressed the common values the USA shares with Europe, and labeled three issues as particularly high priorities in the USA’s foreign policy: the prevention of the spread of weapons of mass destruction, the war on terror, and the strengthening of international organizations; the last of these, admittedly, appeared slightly disingenuous in light of the massive criticism Trump has leveled at these same organizations. Unlike in the previous year, when Vice President Mike Pence and US Secretary of Defense Mattis vanished from the podium after their talks, McMaster was prepared for a dialogue in Munich. In the course of this discussion, McMaster distanced himself from the president in confirming that it was now “indisputable fact” that Russia had acted to influence the US presidential election. Trump reacted furiously on Twitter over the weekend.

Asked about the Hobbesian views he sketched in an op-ed he published in the Wall Street Journal with Trump’s chief economic adviser Gary Cohn in May 2017—namely, that he saw the world as an (economic) war in which every nation had to fend for itself—McMaster clarified in Munich that his thesis only applied to the competition between free and unfree states, and that he in no way meant to include the relationships between allies, a tactical re-interpretation that is nevertheless contradicted by many of the things Trump himself said throughout 2017.

On the annual MSC Congressional Panel, the four speakers worked across party lines to present a credible image of continuity in US foreign policy. Should the White House deviate from the previous line, Congress would intervene, as for example in the case of the Russia sanctions or the State Department’s financing.

Escalatory Rhetoric Instead of Dialogue

The panel, focused as it was on communicating continuity, also showed what has changed leading up to the start of the 2018 MSC: From Washington’s point of view, North Korea has become the most significant risk, while at the past MSC, terrorism had topped the list. The fact that Trump’s escalatory rhetoric has made inroads among the foreign policy-makers in Congress was demonstrated by Senator Jim Risch (R-ID), who warned that any military action from Pyongyang would fail “massively” and bring loss and destruction of “biblical proportions.” During the panel on nuclear arms control, US Deputy Secretary of State John Sullivan and former Russian Ambassador to the United States Sergei Kislyak accused each other of pursuing aggressive nuclear arms policies. They traded the kind of verbal blows that one would hardly expect to hear even at the height of the Cold War.

In general, there was little from the US side about national maximization of utility and transactional dealmaking. In fact, the opposite was true: the Americans present worked to restore greater credibility to Washington’s place in the Western alliance and the Western community of values. In this they were only partially successful. Participants still considered Trump’s word to be final, whatever his representatives might say.

From the Post-Western World to Systemic Conflict

In 2017, the fall of the West and its international relations paradigm and the rise of a “post-Western” world, created by Russia and Iran among others, was one of the central topics of discussion. In the 2018 MSC, however, debates about the international security situation were held against the backdrop of a more and more openly acknowledged systemic conflict between Western, liberal democracies and authoritarian, sometimes protectionist regimes. Foreign Minister Gabriel said, for example, “This new world, which is much more complex than the world of the Cold War, is defined by systemic competition between developed democracies and authoritarians.”

The Americans who were present worked to deliver a clear statement on this systemic conflict, one that would place them on the side of Europe. In this context, former Vice President Joe Biden attacked Russia directly: “Putin is doing everything he can to destroy the transatlantic alliance and the international liberal order.” According to Biden, it was easier for the Russians to attack the West than to repair the political, economic, and social fractures in their own society.

Russia Once Again Plays the Victim

In fact, Russian Foreign Minister Sergey Lavrov’s appearance showed that Russia still sees itself as a victim of Western expansionism above all, and is still far removed from the political mainstream. In a speech that was gloomy even for Lavrov, the foreign minister liberally mixed Nazi revisionism with developments since the 1989 fall of the Soviet Union, and characterized the charges filed against 13 Russian citizens by Special Counsel Robert Mueller due to their interference with the US election as “gossip”. Turning to the conflict in Syria and the conditions necessary for a regional security structure, he showed little interest in returning to productive cooperation with the West.

The Elephant in the Room: China

China’s roll warrants further reflection. In the plenary session, Foreign Minister Gabriel was the only one to explicitly refer to it; he interpreted the Belt and Road Initiative as an attempt “to establish a comprehensive system to influence the world in line with Chinese interests.” China is a counter-balancing force in the systemic conflict, and at the moment the only one pursuing a thoroughly thought-out global strategy. The EU has to develop more internal consistency and help the member states develop a common sense of their interests in the union’s foreign relations. It must then develop strategies and instruments to implement these interests together.

China was otherwise relegated to the fringes of the discussion, although even here it was clear that certain things were being thought of differently: belief in China’s transformation, for example—both in terms of its step-by-step democratization and in its transition to a market economy—seemed to no longer be present, even among representatives of the business community. The Belt and Road Initiative is seen as a threat, and not only because China is strategically investing to secure access, undermine Western norms, and build up its own position, but also because it has the potential to divide inner-European unity.

Dealings with China, Central Asia, and the Eastern neighborhood of the EU are themes for which the EU currently has no persuasive strategy. At the same time, with the USA’s withdrawal the EU will have to learn to work with the powers in these regions.

This new significance of the relationship with China was hardly seen at the conference. Investments in dialogue with China are urgently necessary. In Fu Ying, the chairman of the Foreign Affairs Committee of the National People’s Congress, the Chinese sent an experienced diplomat and a representative of the Chinese nomenklatura to the MSC discussion on nuclear arms control; otherwise, however, the challenges posed by China, India, and a rising Asia remained largely unaddressed.

There were few actual programmatic discussions in Munich; with the exception of Foreign Minister Gabriel’s, the closest were delivered by the emir of Qatar, Sheik Tamim Al-Thani, and Iranian Foreign Minister Mohammad Javad Zarif. The last suggested an “inclusive” security structure for the Gulf Region, one built step by step, but simultaneously rejected the notion that Tehran was responsible for the current tense situation and dodged a question about Israel’s right to exist. It was also typical of the political environment that when there were specific suggestions made there was hardly any reaction.

The EU: More Strategy, More Ability, More Engagement!

Cooperation within the EU paints a mixed bag: There has been progress with the creation of structures and processes in the area of defense, and despite initial skepticism the Central and Eastern Europeans seem to be on board. However, strategies for handling the most significant risks, whether an escalation of the situation in the Middle East, the actions of North Korea, or a destructive cyber attack, were absent on both sides of the Atlantic.

Thus the hoped-for “step back from the brink” failed to occur during the Munich Security Conference. Instead, several debates seemed much more suited to spur on ongoing conflicts, as with the debate about the situation in the Middle East on the final day. Israeli Prime Minister Benjamin Netanyahu in particular used his talk as a reproach to Tehran more than anything else: in the course of his address, he held up a part of an Iranian drone recently shot down in Israeli airspace.

No one should expect the international situation to quiet down. German and European international policy-makers have great tasks ahead for which they are not yet sufficiently prepared. As Foreign Minister Gabriel demanded, they must become much more strategically capable, as well as more active and innovative, in order to succeed in this new systemic conflict and help reduce instability. There isn’t much time left.

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© REUTERS/Fabrizio Bensch

They might not be running for office in Germany, but for France’s presidential candidates, a campaign stop on German soil has become par for the course. French politicians have often used their larger, more powerful neighbor as a platform to lay out their visions for France and Europe. It was little surprise therefore to see former Economy Minister Emmanuel Macron, who has built his own “En Marche!” movement, arguing for a more proactive France in front of a crowd at Berlin’s Humboldt University.

Conservative François Fillon, on the other hand, traveled to the German capital to meet with his fellow Christian Democrat, Chancellor Angela Merkel, at the start of the year; he also delivered a speech calling for a more streamlined Europe. As for the leader of the right-wing populist Front National, Marine Le Pen, she teamed up with the German populist Alternative für Deutschland (AfD) party at a gathering of far-right leaders in Koblenz in January, where she took aim at Berlin’s pro-European policies.

All three candidates have drastically different visions for France and its role in Europe, and this May’s presidential election will undoubtedly have a significant impact on Germany and France’s unique bilateral relationship – by far the closest within the EU. It still holds true that any European solution requires Berlin and Paris at the helm, whether it’s dealing with eurozone woes or the migration crisis. Yet in recent years, Europe’s two most powerful states have been increasingly limited in their ability to advance a common agenda.

Disappearing Power

The last few years have shown that Berlin and Paris are finding it ever more difficult to strike compromises and mobilize partners. Despite a series of crises within the EU and beyond, pressing questions remain unresolved. Joint efforts to deal with the refugee crisis in 2016 proved difficult. Merkel and President François Hollande met various times over many months in an effort to find a common solution, with little to show for it: the proposal that emerged from those hours of negotiations aimed to strengthen the EU’s external borders and reform the Dublin asylum regulation. But their in part quite far-reaching proposals met with opposition, and Berlin and Paris proved unable to convince their  European partners of the wisdom of their ideas.

Interests within the bloc have grown increasingly diverse, and European-level governance has become controversial, particularly with the wave of right-wing populism sweeping the continent. And in some policy areas, integration is already so advanced that any step forward threatens to tread upon national sovereignty.

It is precisely the question of integration and sovereignty that Germany and France have failed to address adequately; daily cooperation between the two governments has helped in times of crisis, but neither Merkel nor Hollande have succeeded in setting out a clear vision for Europe or taking responsibility of a fragile community. If the two leaders don’t present a series of goals and agree to compromise on European policy at the highest level, the vaunted French-German partnership could slowly grind to a halt. More importantly, both countries are facing key tests in national elections this year, and new faces could well reshape bilateral relations significantly, redefining a long-standing partnership.

A Fluid Balance

France and Germany’s relationship was long defined by a relatively fluid yet stable equilibrium: Germany was traditionally stronger economically, and France drew its influence from foreign policy and military prowess. But after the end of the Cold War, France’s traditional tools of power – its nuclear arsenal, its permanent seat on the UN Security Council, and its ties to the United States – started to lose their shine. At the same time, Germany discovered a newfound confidence on the world stage, building a mighty export-oriented economy and assuming a leading role in the EU. The scales began to tip decisively, and the chasm between the two countries sparked tensions.

In the back halls of the National Assembly in Paris, frustration brewed amid feelings that the French government had been relegated to second fiddle and no longer held the keys to its own future. Berlin, on the other hand, felt increasingly vulnerable to the mistakes and weaknesses of France and other European countries. These doubts and misunderstandings still plague their relationship today.

Some perceptions have improved: Gone are the days of 2012, when controversy over German dominance in the EU stirred hefty debates in France. Yet even if Germany is not explicitly mentioned in campaign rhetoric, Berlin’s relative strength has cast a shadow over growth, competitiveness, and economic reforms. For many French voters, Germany is clearly setting the course for the EU.

In a country where a sense of national pride and sovereignty run deep, it is not entirely surprising that German power has become a source of irritation among voters and lawmakers – particularly for those on the more extreme ends of the political spectrum. Marine Le Pen has accused Germany of enslaving “the peoples of Europe.” The far-left politician Jean-Luc Mélenchon, meanwhile, has demanded a showdown with the German government. Voices of discontent have even emerged from mainstream parties: the Socialists’ candidate, Benoît Hamon, is calling for an alliance of Europe’s left to counter Berlin’s policies, and Fillon aims to make France a solid counterweight to Germany. Until now, only Macron appears to see France and Germany bound by their commonalities rather than their differences.

Tensions between France and Germany are hardly new. The familiar power play between the two neighbors featured prominently in the 1970s after the oil crisis, during the ensuing economic crisis, and even in the early 1990s with the end of the Cold War and German reunification. At that time, French newspapers were awash with the question of whether a dominant Germany posed a threat to France because it wielded far more economic and political influence. These days, anti-German sentiment has returned.

Yet in these debates, it is often forgotten just how much Germany depends upon a politically and economically stable France. Germany has often been described as a reluctant hegemon, uncomfortable, self-conscious, and uncertain of its own power. In recent years in particular, Berlin has longed for a stronger, more robust partner in Paris willing and able to share the burden of responsibility. France’s weak points are seen as a liability, both politically and economically.

What’s more, fears abound in Berlin, too, where some lawmakers are increasingly concerned they are being hoodwinked, with suspicions that Paris is undermining the eurozone’s rules. In some circles in Berlin, there is the belief and expectation that France “must do its homework” before further steps can be taken. On both sides, mistrust and strained communication have hindered actual progress.

Reset Needed

The framework of France’s and Germany’s relationship has also faced significant structural changes that make it difficult to restore ties to what they once were.

First, Europe’s debt crisis has sharpened the lines of asymmetry between the two; while Germany was barely affected, France is still struggling with an unemployment rate of around ten percent, sluggish growth, and towering public debt. Meanwhile Germany is enjoying full employment, record surpluses, and a balanced budget; and the US has overtaken France to become its largest trading partner.

France has also seen the president’s authority suffer a blow in recent years, due to the governing Socialists’ internal squabbling on European and economic policy. The Front National, meanwhile, has pushed public discourse to the right and destabilized the political landscape. These developments have weakened France’s position in the EU as Paris has become a less reliable partner. Germany has witnessed a long period of stability, but the AfD is threatening to rattle the status quo. If the populists garner enough votes to enter parliament in September (which looks likely at this point), mainstream parties in government will be reluctant to pursue more integrationist policies.

Second, structural changes have reinforced the uneven distribution of power in the EU. A series of crises have tarnished the bloc’s image and made Germany’s disproportionate strength loom especially large. The 2007 Treaty of Lisbon shifted power in Brussels, enhancing the role of the European Council and weakening that of the European Commission. That has benefited large countries like Germany that could build coalitions and frame policy; France, meanwhile, has been facing domestic battles and has struggled to appear credible.

Third, skepticism and downright hostility toward the European project has grown significantly in France over the last decade. According to a study from the Pew Research Center in June 2016, 32 percent of those polled were in favor of the European Union, compared to 69 percent in 2004. It’s no wonder then that most of this year’s presidential candidates have curried voters’ favor by portraying the EU as the problem, rather than part of the solution.

For years, European integration was sold to French voters as a form of protection, especially from the powerful forces of globalization. But doggedly high unemployment and the rising number of people in precarious living conditions have seen trust in Europe dwindle. Germany is seen as the main architect behind the EU’s strict “austerity” rules as well. In short, many French believe they have been forced to implement policies that are directly responsible for their economic and social woes.
The EU enlargement in Eastern Europe of 2004 – bringing the bloc to 25 members – was regarded with skepticism, too, triggering feelings of uncertainty and alienation. A year later, those sentiments bubbled to the surface as a majority of French voters rejected the EU’s proposed constitutional treaty. The commitment to more fiscal discipline only fueled frustration further.

Germans, on the other hand, mostly saw the 2004 enlargement as an historic and strategic necessity and a further economic opportunity. Doubling down on fiscal discipline was considered a prerequisite for long-term sustainable growth, and financial solidarity was a key cornerstone of future success. Clearly, France and Germany were drifting apart.

Bringing Back Old Habits

In the past, Germany and France have countered mistrust and resentment with more cooperation: Helmut Schmidt and Valéry Giscard d’Estaing built the foundation for a common currency in the 1970s, for example. Some twenty years later, Helmut Kohl and François Mitterrand brought their governments together for a conference that paved the way for the Maastricht Treaty in 1992. Integration, it seemed, was a natural reflex to uncertainty. These days, that seems no longer the natural thing to do.

The task of keeping the EU together and preserving the single market in the face of Brexit and the Trump presidency has taken top priority, while the question of reforming treaties is no longer considered realistic. Yet it is time to return to the old reflex, with a new approach: fresh Franco-German initiatives could be effective if they are based on a deep understanding of the economic and social circumstances in both countries. The labor market is a prime example. German companies have complained time and again about a shortage of skilled labor; France, meanwhile, is struggling to combat high unemployment. French youth lack real prospects at home, and that threatens to destabilize social cohesion with serious consequences. Front National has scored well with young people by portraying itself as a champion of the weak. Together, Germany and France could bridge the labor gap.

This year is likely to be a decisive one for the EU and the French-German relationship. There is no denying that the two countries have the power to tackle crucial questions on integration and reform. It is equally clear, however, that competing interests and political polarization will threaten to drive a wedge between Berlin and Paris, particularly with elections drawing closer. Joint initiatives might fail to overcome anti-European sentiment; yet it is more likely that the EU itself will fail if these two countries do not forge a path ahead together.

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© REUTERS/Yves Herman

Europe is entering 2017 with an acute sense of helplessness. Internal crises and external pressure have driven deep wedges between the European Union’s 28 (or probably soon 27) member states. The rise of populism has stoked new fears, especially with key elections in three major EU countries this year. The era of post-truth politics and the influence of fake news have cast a long shadow, especially over those battling to forge responsible, lasting policies on both sides of the Atlantic. Russia has destabilized the European Union by flexing its muscles at home and abroad. Further crises in Europe and beyond have triggered debates over security and migration, and they are tearing at Europe’s fabric.

Uncertainty and unpredictability have paved the way for new actors who peddle simple solutions: nationalism, a weaker Europe, isolationism. They are threatening to topple the entire Western liberal order – the very foundation of European integration. And their dissent is drowning out the voices of those who dare to defend liberal societies, Western values, and the joint development of European, Western, and global structures. With Donald Trump in the White House, Europe might well lose its most important ally in the democratic liberal order.

Time to Act

Even if President Trump does not carry through all of his campaign promises, Europe will soon have to get used to an America that builds its foreign policy exclusively in its own interest, with little consideration for mutual concerns. The European Union can wait and watch, and run damage control. Or it can take the reins and lead Europe back to a position of strength. Only then might Europe be considered  a valuable counterpart to Washington. But before the EU can begin to forge a cohesive foreign policy, it must first and foremost mend the widening rifts within its own borders.

Without compromising on liberal principles, European policymakers must address the fears and frustration of those citizens who are drawn to populism and extremism. They have little trust in the current system or its elites, and it is crucial that Europe reaches a hand out to them – not least because populists here watched how Trump successfully redefined the boundaries of public discourse by polarizing groups and blurring the truth.

There does not seem to be much that EU countries share in common these days, but they have all witnessed a growing uncertainty, a sense of losing control. Identity has become a bitterly divisive issue in some member states, particularly as migration has taken center stage in the past few years. Other countries are battling deep-seated socioeconomic woes. The two are often intertwined: It is precisely those who struggle to make ends meet that are more likely to feel threatened by foreigners and prefer more borders, not fewer.

Inequality on the Rise

In these uncertain times, the European Union is more often seen as part of the problem than the solution. Brussels is perceived as the shepherd of liberalism, an abstract power that unlatches borders and renders national governments unable to protect their own citizens or economies. The European internal market has been the motor of Germany and the EU’s overall economic success, but it also created systemic inequalities. Germany has exhibited steady and robust growth, but in weaker states, GDP has yet to reach pre-crisis levels. Unemployment has surged in a number of member states, particularly among youth. Millions of young Europeans have no prospect of finding a fair and respectable job. Tax competition within the EU has seen capital and entire labor forces shift from one member state to another. All of these factors only serve to reinforce the sense that Europe is far more a burden to than an advantage for many social groups.

It is no wonder then that a growing number of people are starting to question the social and economic policies of the last few decades. That makes Europe, like the US, prone to protectionism and isolationism; both offer false hope to those who feel left behind. And free trade has become a central target in the debate over Europe’s future. Mass protests hamstrung negotiations on the Transatlantic Trade and Investment Partnership (TTIP) and the Comprehensive Economic and Trade Agreement (CETA). It is the first time in the postwar era that the exchange of goods and services sparked such hostility.

But the EU failed to look after the growing number of people on the wrong side of Europe’s liberal market policies, and it is now paying the price. There is no longer a consensus that free trade and investment pacts are in the EU’s interest, and the European Commission (Europe’s chief negotiator) is not on equal footing with partners like the US. If this trend continues, Europe will be greatly weakened in its ability to have a say on regulation and global standards on issues from the environment to consumer protection to financial stability.

Some of these problems can be resolved on a national level, but others cannot. If Europe is truly to become more competitive, more balanced, and more resistant to crises, we need a long-term strategy for dealing with debt and deeper reforms on eurozone governance. On social policies, we will need greater participation from some member states to combat rising political and social instability. The complete and utter lack of effective stabilization instruments is yet another argument in favor of overhauling the EU budget. Brexit negotiations provide the perfect opportunity to do so, as the EU will have to recalibrate the budget without Britain’s contribution.

It is not just economy and trade, though: the visa-free Schengen zone and Europe’s liberal asylum policies are also the subject of much debate. Now more than ever, the EU must demonstrate its ability to guarantee strong internal security and effectively fight terrorism, even with open borders. That will mean more systematic cooperation and intelligence sharing. And Brussels will have to demonstrate that it can regain control of immigration, by forging agreements with countries of origin and transit, for example, or by instituting external border controls. The objective formulated at the EU summit in Bratislava of exercising control over external borders is just as important as developing a long-term common immigration policy.

It is neither politically nor legally easy to remedy the weaknesses of an incomplete European system, particularly when it seems near impossible to revisit existing treaties. But that is no excuse not to act.

The EU’s Stress Test  

Issues of economic development and migration have the potential to divide the European Union further. It will be all the harder for Brussels to stem the trend if the US is no longer the force of cohesion in the West that it has been over the last few decades. From Brexit to Russia, the Obama administration worked closely with its European partners (especially Germany) to present a united front over the last eight years, even if Obama’s “pivot to Asia” gave the impression that America was starting to look further afield for new partners.

With a new administration that is at best indifferent to Europe, the task of keeping the European Union together will be left to us and us alone. Washington’s ability to polarize Europe through its foreign policy aims should not be underestimated, either. If the White House chooses to mend ties with Moscow, for example, the consequences for European and German policy on Eastern Europe will be significant. And if Washington decides to drop sanctions, it would completely undermine Brussels’ entire strategy for dealing with Vladimir Putin and Eastern Europe. That would threaten to open up deep chasms within the EU: Some member states would align with Washington while others would not.

The relationship between the US and the UK could prove to be another stress test for the European Union. If Washington and London revive their “special friendship” with a bilateral trade deal or closer defense cooperation, the impact on the EU’s ability to negotiate Brexit would be critical. And it would stoke fears in Brussels that other member states might believe there are far more interesting alternatives to the current union.

It is all the more important that Europe develop its own strategy on how to deal with a changing of the global guard. The transatlantic partnership has been the bedrock of German and European foreign policy since the end of the World War II. Even when there were bitter disagreements over the Iraq war, for example, there was always cooperation in times of crisis. Europe, especially Germany, could always rely on the US’ guarantee of security without contributing much of their own.

Dealing a New Hand

Donald Trump has completely reshuffled the deck, and it is completely unclear how he plans to deal the cards. During the campaign, he vowed to make changes that would threaten to upend global security and global order.

There are two possible scenarios for Europe: in the best case, the Trump administration will continue the current course but pull back from its commitments to the EU and NATO. That means some member countries will have to take on more responsibility, a trend already set in motion after the Wales summit in 2015, where NATO states committed to spending at least two percent of GDP on defense.

The second scenario is far more problematic: The new US government might directly challenge the pillars of international order if it sees a chance for a better deal. That approach could take aim at everything from the World Trade Organization to the United Nations. Trump’s White House might destabilize the nuclear deal with Iran or the Paris Agreement on climate change. If Washington decides to sanction the torture of suspected terrorists, it would demonstrate blatant disregard for international law and seriously undermine its credibility.

If Europe is to gain insight into Trump’s positions and strategies, it must establish as close a connection with his administration as possible in the first few months of his presidency. From the EU’s perspective, Brussels will have to actively work to exert influence on key stakeholders in Washington early on, in order to prevent the global order from breaking down further along the road.

Europe must demonstrate a strong commitment to security and defense policy. Its NATO members have to make clear that they intend to honor their defense obligations, not only by spending more but also by improving cooperation and integration among EU countries. That would serve to remind Washington just how important its alliance with Europe truly is. Above all, Brussels must demand clarity on whether the security guarantees that have existed until now will continue to exist – not least because Russia sees the current political upheaval as a testing ground. At the same time, the EU and Berlin in particular would be wise to remember that military means are only one instrument; stabilization and development policies are also central pillars of foreign policy.

As for the importance of international order and regulation, the Europeans would do well to warn the US against undermining existing structures. If not, regional competition could gain the upper hand. If more organizations like the Asian Infrastructure Investment Bank (AIIB) begin to crop up, Western-oriented institutions, like the World Bank, begin to lose their effectiveness – and their ability to ensure good governance. The US, too, would stand to lose influence.
Defending Open Societies

As the US considers retreating from its role as a global policeman and regulator, other world powers are already filling the vacuum. As soon as Trump vowed to abandon the Trans-Pacific Partnership (TPP), China positioned itself as the engine for trade in the Asia-Pacific region. The concept of spheres of influence, which both China and Russia strongly defend, is on the rise. Europe can only be effective if it creates a common policy for both countries, but efforts to do so have been disrupted by Moscow and Beijing seeking bilateral deals and cooperation with individual member states.

It is up to Europe to stand up for its values and ideals of freedom, and it should continue to uphold them as the basis for transatlantic cooperation. Defending liberal democracy both at home and abroad has become Europe’s most important commitment. In order to maintain its credibility abroad, Europe first of all needs to overcome its own internal struggles. This will require more decisive European policies on issues like economic and social policy for euro area members, and, for other countries, the possibility of looser integration than our current standard. The challenge for the EU will be to master differentiation without allowing it to turn into accelerated disintegration.

Externally, on foreign, security, and defense policy, Europe has to take more responsibility in this increasingly volatile world where Western global structures are being targeted. Germany and France should work closely with Poland and other partners. This should include engaging the UK on this issue parallel to Brexit negotiations.

The current state of the EU is proof that incomplete integration is dangerous. In the beginning, the European Union enjoyed an unprecedented period of expansion and cooperation, but Brussels didn’t keep up the pace on political integration. The temptation to withdraw now is great. If the EU allows that to happen, it will come at a great price.

Read more in the Berlin Policy Journal App – January/February 2017 issue.

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For the past five years Europe has been confronted with one fundamental crisis after the other – and each has pushed or pulled Berlin to the center of the Union’s response. When the sovereign debt crisis hit a number of member states in early 2010 and put the single currency under existential threat, Berlin unequivocally became ringleader. The German government has since been a key player both in crisis management and in reforming the euro area governance framework. Since 2014, Berlin, in cooperation with Paris, has also led the EU’s efforts to solve the Russia-Ukraine crisis. More recently, Germany has become a key actor in the EU’s struggle to find a common approach to the refugee crisis, which has been unfolding for years, but only recently reached the core of the EU with the influx of hundreds of thousands of mostly Syrian refugees. While Berlin came to lead the EU’s policy response on the sovereign debt crisis and Russia more by default than by choice, it was on the refugee crisis that the German Chancellor seized leadership most actively in summer 2015.

Over the past five years, the German government has gathered relevant experience in leading EU policy responses. However, the factors that made Berlin effective on previous occasions only partially apply to the current challenge of managing the refugee crisis and solving the underlying deficiencies of the EU’s functioning in Justice and Home Affairs. From partners to power resources and leverage, the conditions for Berlin’s leadership differ significantly between the three crises – and, so far, there seems to be little carryover from one to another. As a result, Germany’s ability to move things forward in Europe with any sustainability looks uncertain.

Leading with Weakened Partners

If there is a unifying theme across the three cases of German leadership, it is that the German government’s strength reflects the weakness of others. At other times and under different domestic circumstances, some of Germany’s partners would probably have acted earlier and more ambitiously to help tackle the problems confronting Europe. France, for example, has traditionally been more active on migration issues and the shaping of euro area governance than it has been over the past five years. The same is true for the UK, which is traditionally very forward-leaning on foreign policy and defense issues. Since 2014, however, it has been largely absent from the EU’s approach to the Middle East and Russia, including the management of the relationship with the United States.

In both cases, the inward-looking policy-making of the governments stems mainly from the rise of euroskeptical, anti-establishment parties that make it harder for the governments to strengthen joint European approaches and decision-making. In addition, the negative experience of the UK’s intervention in Iraq and Afghanistan has led to a more cautious British foreign policy. As far as European policy making is concerned, the rise of UKIP and its attraction to both Tory and Labour voters puts substantial pressure on the British government to accommodate euroskeptical positions, which Prime Minister David Cameron has translated into a pledge to renegotiate British EU membership before a referendum on this matter.

Meanwhile, in France, the Front National (FN) has established itself as a political force. Having adopted slightly more moderate rhetoric while maintaining its traditional right-wing populist positions, FN managed to come in first in the European elections in 2014 with almost 25 percent of the vote. And it is not just the big two that are struggling to drive policy in Brussels. Southern European member states such as Spain, Italy, and Portugal have been focused on dealing with the domestic aspects of the crises in the euro area, while some smaller states that have traditionally been stable and reliable partners of Germany and the Franco-German tandem at the EU level are dealing with more political fragmentation and volatility at home.

The political situation in Germany has been remarkably stable for the past decade. Angela Merkel has enjoyed uncontested political leadership since 2005, while extreme left- and right-wing parties have failed to get a foothold in national government. Of course, domestic constraints, both political and constitutional, have shaped Germany’s approach e.g. to the sovereign debt crisis, but have not turned the government or the vast majority of Parliamentarians into euroskeptics. The country’s relative economic strength and financial solidity is underpinned by socio-economic stability and the trade unions’ readiness to accept labor and wage policies which today still sustain Germany’s global competitiveness and low unemployment.

And yet Germany’s capacity to move things forward in Europe looks anything but certain, and in order to assess it, it is helpful to take a look at the conditions for leadership in each of the crises, in a broader European context and in terms of German power resources.

Veto Power in the Euro Crisis

In the eurozone, Berlin’s position as the largest guarantor of the rescue mechanisms, along with its powerful domestic veto players (in particular the German Constitutional Court), granted the German government an unparalleled degree of influence over EU policy decisions and thus domestic policy choices in debtor countries. The perception that the single currency faced an existential threat compelled Berlin take on financial and political risks that had seemed inconceivable just a few months earlier. But in exchange, Germany was able to set the pace and conditionality of financial aid. Though some governments, at least in certain phases of the crisis, were highly critical of European policy choices with obvious German fingerprints, the gravity of the situation left them with little alternative. Berlin was thus able to push for euro area governance reforms that, from its perspective, encourage member states to adjust budgetary and economic policies and bring the euro area back to the model of a currency union which Germany thought was enshrined in the Maastricht Treaty. At the same time, Germany had to accept higher risk sharing and financial solidarity, which has substantively changed the political economy of the euro area.

In the initial phase of the sovereign debt crisis, the German government worked with a coalition of northern and northeastern EU members, and a growing North-South divide seemed to be emerging. But as policies converged in countries struck by the crises and agreement widened that substantive reforms were indeed necessary, Rome, Madrid, and Paris lost their desire to oppose Berlin, not least because of the potential pressure of financial markets.

However, the absence of vocal and engaged political competition over policies and visions for a deepened EU has not proven to be a blessing for Berlin or Brussels. For instance, the continued absence of a strong French voice in European discussions about the future of the euro area has hampered the duo’s traditional ability to forge consensus and compromise between other EU member states. Certain essential policies over the past five years have displayed a French touch, including the creation of the European Stability Mechanism in 2010 and the increased focus on investment and growth under the Juncker Plan; however, there is little evidence of a broader Franco-German vision for the future of the euro area, and the EU institutions’ desperate efforts to push the debate on the euro area have not led to any substantive progress beyond the creation of Banking Union.

Tandem Still Functioning, Partly

In contrast, in the Russia-Ukraine crisis, Berlin is working closely with Paris in negotiations with the Ukrainian and Russian governments, with strong explicit or implicit backing of other member states, in particular Central and eastern European countries. In the so-called Normandy format France became Berlin’s key partner (replacing the initial Weimar Triangle approach that included Poland), despite Paris’s reputation of being traditionally less interested in Europe’s East. In recent weeks, France’s role has increased as its strategy towards Europe’s South and Southeast has taken on more importance vis-à-vis Russia. So, although initially conceived of as a tool to handle Ukraine-Russia, this format may turn into the EU’s most important format for developing a broader EU-Russia agenda, which must now include Syria and the wider Middle East.

In this regard, the traditional power of Franco-German cooperation, which finds its strength in their complementary perspectives and preferences, is playing out well. In most policy areas, a deal between Paris and Berlin alone no longer works as a suitable compromise for other member states’ interests; but on foreign policy issues, the countries’ approaches are still rather complementary. The test for the sustainability of this approach will be whether both Paris and Berlin manage to engage the other EU governments to maintain broader internal cohesion and strengthen the EU institutions.

This cooperation on the Ukraine/Russia crisis has been essential, as Berlin has nearly had its hands full just managing the relationship with Moscow and Kiev without the added burden of holding EU and transatlantic partners together. While the direct costs of the crisis have been comparatively low, the German economy has taken a considerable hit. German exports to Russia are estimated to plummet to €20 billion by the end of 2015, half the level recorded in 2012. This sacrifice bolstered Berlin’s credibility when asking European partners to maintain European unity on sanctions against Russia; however, the active role played by France was just as essential in reassuring allies, including Washington, that avoiding a hard power escalation was not tantamount to a betrayal of the West.

Missing Incentives

The leading role Germany has taken on in the refugee crisis, meanwhile, differs substantively from the roles it played in both the Russia and euro crises. When Berlin pushed other EU member states, in particular the eastern states, to subscribe to a quota system in response to the refugee crisis, the limits of Berlin’s power became obvious. With the refugee question, the German government does not have a veto to play, and non-action does not endanger the achievements of European integration as obviously. Germany could threaten to erect fences as other EU countries transport refugees to its borders, but this would mean that Germany would surrender its traditional preferences for open borders and free movement of people within the European Union. This leaves the government in Berlin with little leverage to coerce cooperation, in contrast to the euro-area crisis, when the risks attached to German non-action and non-commitment to financial assurance gave it powerful leverage over domestic politics in other crisis countries and the EU in general.

In handling the refuges crisis, Germany also lacks powerful, supranational allies. In various phases of the crisis in the euro area, the ECB and the European Commission pursued interests similar to those of Germany, paving the way for Germany to pursue its own policy approach. In the current crisis, however, there is no such international body to lay the groundwork beforehand.
There are also important differences between the three crises with regards to financial burden and risk sharing. While in the euro crises Germany took on financial risk and agreed to subscribe to a mutual insurance mechanism, the European Stability Mechanism, Germany’s willingness to take in a large number of refugees (up to one percent of its population in the year 2015 alone) is not seen as being an act of inner-EU solidarity, but rather as an attempt to exert moral leadership in the EU. And while they might admire Merkel’s liberal position, it puts some governments with little experience with immigration, especially in Central and Eastern Europe, in a difficult political situation. As a result, there is a rift between Berlin and the some of the countries that have been its closest allies in both eurozone policies and the Russia sanctions. The challenges Berlin has had to face to move other member states to share the refugee burden may grow even larger if Germany at some point starts asking for financial support from Brussels to help pay for the refugees in Germany.

Meanwhile, Germany’s approach to the migration crisis, which is domestically seen as very open and pro-European, has been viewed differently elsewhere in Europe. The government’s back and forth on the migration issue – initially taking a very liberal position and inviting Syrian asylum seekers from other EU member states, then re-introducing border controls when too many came – puzzled onlookers. First Berlin seemed to have abandoned the Dublin convention, which requires that refugees only apply for asylum in the first EU country they enter, with its invitation. Then it seemed to be violating the Schengen Agreement of open borders by reintroducing controls. This led a number of political leaders and journalists to question Germany’s commitment to European integration and agreed norms and rules. This is a tricky point: in the euro crisis, and particularly with regards to Greece, Berlin seemed to hold rigidly to a “rule-based approach” for fellow member states struggling with debt and recession – and this even after Berlin had previously bent these same financial rules, such as when it pushed for a non-application of the Stability and Growth Pact in 2002/03, and then its eventual reform. It is thus not hard to see how smaller and medium-sized EU member governments could get the impression that Berlin can pick and choose when the rules matter, and that a large country’s power overruns the rules and laws of EU governance.

Germany’s leadership in the refugee crisis is still young. And it is still very unclear where Merkel’s policies will lead, both domestically and on the EU level. In its early stages though, this newest crisis reveals cracks in Berlin’s leadership position in the Union since its moral authority has yet to translate into much substantive movement on the European level and left Berlin struggling to find powerful allies.

Complex Search for a Role

At a time when the European Union is facing unprecedented internal challenges and controversy, external aggression, and global change, Germany is still adapting to being the most powerful and ambitious country in the EU, and to the criticism and reactions that such a position brings. And domestically, Berlin is also still in the process of defining what leadership can and should mean. Germany’s old habits are being challenged, as are its assumptions on close cooperation with allies and friends. It is becoming increasingly clear that the United States, at least for the near future, cannot and will not help as it used to when Europe was faced with serious security challenges, while Germany’s European allies, in particular large member states like France, the UK, and Italy, are mostly preoccupied with domestic challenges. It is still unclear whether we are currently witnessing a learning phase, in which Germany will discover how to use its power resources in a complex setting of insecurity and competing objectives and stabilize the EU as a framework for rules-based action, or whether Berlin is doomed to failure given the difficulties of systemic and domestic conditions.

The complexity of Germany’s search for a role in the EU is illustrated by the fact that, in the three crises, its leadership has not followed a consistent pattern, neither in terms of partners nor with regard to power resources and impact. While for decades the starting point of European initiatives was generally a powerful Franco-German approach, Berlin is now working with different coalitions of member states depending on the policy areas. This requires agility, as well as intense and diverse investments in bi- and multilateral relationships in the EU, particularly as coalitions forged in certain policy areas do not work in others; countries that were with Germany on austerity in the eurozone and a hard line on Greece, for example, were fiercely against Germany on accepting refugee quotas. Despite the indisputable achievements of the recent years, the accumulation of crises and the patchwork of interest coalitions across issue areas indicate how potentially limited German leadership in the EU might be if it cannot partner with large countries or a stable group of smaller member states across policy areas.

In 2010 the German chancellor questioned the role and impact of supranational institutions in crisis management and the big issues of EU policy making in her speech in Bruges, pointing to a future “Union method” based on intergovernmental cooperation over a “community method” led by EU institutions. However, deliberate coordination with the EU institutions may prove the method of choice for the future. Germany’s suggestion to strengthen the European Commission’s role in the surveillance and coordination of member states’ economic and budgetary policies is one example of this. The German foreign minister has also been explicit in lending support to EU High Representative Federica Mogherini, who has just completed her first year in office. To make progress in addressing the refugee crisis and improving the EU’s governance in Justice and Home Affairs, large countries like Germany will need to work closely with the supranational EU institutions, in particular the European Commission and the European Parliament. Both institutions are important as venues for secondary law making. In addition, the European Parliament can play an important political role, leveraging its role as a forum for trans-European debate with trans-European party structures, which can be used to further trans-European consensus building.

Investing in Power

In terms of power resources, Germany’s ability to impact EU decisions has proven strongest when others need it to act to protect core achievements of integration (such as the euro) and it has a credible narrative about domestic veto players that limit its flexibility. Where it lacks a credible threat, such as on refugee quotas, it has not been very effective. An alternative to coercing through threats would be persuasion through incentives; but to date, Germany has not successfully implemented incentive structures in the EU that would improve its leadership capacity.

In order to build and maintain leadership capacity in other policy areas, Germany will need to invest in EU capacities in two ways. First, it will not be able to drive EU efforts forward unless it continues to take on a large share of the burden of joint solutions, in particular as a number of member states, including Greece, Spain, and Portugal, as well as Italy and France, are still recovering slowly from the financial and economic crises of the past years. This does not mean that the German government cannot also help build European solidarity mechanisms from which it may eventually benefit itself – for instance for sharing the costs of handling the refugee crisis, or for strengthening crisis resilience in the euro area. In fact, as the influx of refugees continues to put stress on Merkel, Berlin may need to make the case at home that the EU also helps Germany cope in order to maintain public support.

Secondly, the German government will have to invest in building trust, consensus, and coalitions. As the back-and-forth in the refugee crisis or Germany’s pressuring of Greece have shown, any surprise move from the German government risks being interpreted as a manifestation of self-interest and a misuse of its power position. Building and maintaining partnerships and coalitions will require more time and consistent political effort than Berlin has been investing. Germany, as the most powerful country, will likely also need to resort to issue-linkages and cross-policy deals, for instance to keep closed ranks on Russia or to find compromises on the migration issue.

Meanwhile, German policy-makers and the German public will need to learn how to deal with criticism without dismissing it as a natural side effect of a leadership role. Since the financial and economic crises hit the eurozone eight years ago, Germany’s role in Europe has been vehemently criticized; Germany has been accused of shirking responsibility, obstructing progress, and leading in the wrong direction as it suits national preferences. Policy-makers in Berlin need to get better at engaging with their critics, and even learn from them when trying to tackle European challenges.

Since 1946, and in particular since regaining full sovereignty as a nation state, Germany has always defined its European and international role as part of a European and international order that is bound by treaties, secondary law, and EU decision-making procedures. But for German citizens and next-generation leaders, Europe has become a matter of choice, not an obligation grounded on historical memory and shame. This is where the largest domestic leadership challenge for the government emerges. Voters today need more convincing.

This is an especially important task in the face of the refugee crisis, which, for Germany, is a huge socal and political challenge with the potential to destabilize Germany politically. The government will need to balance its liberalism on asylum policy, which is enshrined in the German constitution, and the capacity of its administration, civil society, and policy-makers to actually handle the practical, political and security challenges that come with the current inflow of refugees. In order to maintain Germany’s pro-European stance and its openness to globalization and internationalization, the refugee crisis must not lead to the perception of a loss of control, rising insecurity, or the return of identity issues.

A domestic political crisis leading to further polarization and possible political instability would endanger Germany’s support for European integration. The effects of this would be enormous – not only for Germany, but for Europe as a whole.

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© REUTERS/Yiorgos Karahalis

The crisis in Greece has been characterized as a make-or-break-moment for the eurozone – and that may be the case if Athens moves closer towards a Grexit in the coming weeks.

A Grexit would not only entail economic, financial, political, and geo-strategic risks for Greece as the country would invariably go through a time of insecurity about its future and face financial – and political – turmoil. If a new currency were to be introduced in Greece, which economists expect would devalue as much as 30 percent, most households and businesses with external debt denominated in euros would have to default on their liabilities as they would become practically unpayable. In addition, rising inflation rates would hurt households as most Greek consumer products are imported. Meanwhile Greek exports have not picked up despite the ongoing devaluation of the euro and the real devaluation of Greece through adjusted price levels within the eurozone, so there is a risk that, at least in the short-term, Greece’s competitiveness will not be restored with a return to the drachma (or some other currency).

However, the eurozone, too, would be seriously challenged in the event of a Grexit. First, the risk of contagion is lower than in 2012 due to a reduction of Greek debt holdings on balance sheets of European financial institutions and better bank resolution capacities. But the ECB and national central banks (and in the end, the European tax payer) would suffer significant losses equivalent to the amount of Target 2 balances – the balances held in the eurozone’s cross-border payment system – connected with the Greek account deficit. Second, the danger is that markets would no longer believe in the idea of monetary union and in the euro as a stable currency. If Greece’s exit destroys the notion that eurozone membership is irrevocable, investors might perceive the eurozone as a fixed exchange rate regime rather than a true currency union.

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Read the complete article in the Berlin Policy Journal App – July/August 2015 issue.

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