© REUTERS/Annegret Hilse

Seven years ago DIE ZEIT foreign editor Jörg Lau provocatively wrote of the “German love of dictators,” pointing to Germany’s uncritical embrace of autocracies, kleptocracies, and theocracies in the name of smoothly doing business, be it China, Russia, or Iran. Lau criticized the German tendency to value “stability” above all else and to characterize the alternative to dictators like Vladimir Putin always as “chaos, separatism, nationalism or even Communism.” Attempts at criticizing regimes like Putin’s was regularly denounced as “hyper-moralism”—and who are the Germans to play the school master of the world given their history?

Strikingly, this approach remains dominant in the case of Germany’s relationship with China, too. Peter Altmaier, the Economy Minister and close confident of Chancellor Angela Merkel, gave an interview on July 15 to Politico Europe defending Berlin’s refusal to take a hard line over China’s repression of Hong Kong. Altmaier argued that those advocating a more strident approach were ignoring the economic consequences of confronting Beijing. He sounded like many of his Social Democratic (SPD) predecessors, making the case for Wandel durch Handel (“change through trade”), stating, “I have always been convinced that change can be achieved through trade.” He argued that this strategy had worked with the former Soviet Union and remained the core of the German approach to the Middle East, Africa, and Asia.

Dangerous Misconception

This answer and approach are mistaken and are quite dangerous in the longer term. The phrase of Wandel durch Handel came out of the earlier formulation of Egon Bahr of Wandel durch Annährung, or “change through rapprochement.”  This was the original concept behind the shift in the West German strategy toward the Soviet Union in the early 1970s under Chancellor Willy Brandt from one of a policy of strength to one of dialogue.

Many Germans, especially Social Democrats, believe to this day that this was the primary factor behind the peaceful reunification of Germany in 1990. It’s true that West Germany’s acceptance of the postwar territorial order and the renunciation of claims for the lost lands in the east were crucial to Mikhail Gorbachev’s acceptance that Germany was no longer a threat to the Soviet Union. Without the support of the United States, however, both with its extended deterrent and diplomacy, German unification would not have happened the way it did.

This way of thinking also downplayed the major political and ideological differences between the West and Communist East to the point that Chancellor Helmut Schmidt agreed with the East German Communist leader, Erich Honecker, that martial law was necessary in Poland in 1981. Stability trumped ideological differences, democracy, and human rights. This was a form of realism to be sure and another example of the German love of stability.

The Primacy of Economics

The reasons behind Germany’s passivity lie in the nature of the its geo-economic approach to foreign policy, which is grounded in its political economy. Germany is the most export driven economy in the world, with close to half of its GDP deriving from exports. It also has the globe’s largest per capita current accounts surplus, is heavily dependent on industry and on the import of energy and other raw materials to fuel its industrial core. The business of Germany is business and despite the importance of Moralpolitik and the need to atone for the crimes of the Third Reich, economics is seen as the foundation of both German democracy and Berlin’s international role.

This approach was adapted to Putin’s Russia from 2008 under the “partnership for modernization” of then-Foreign Minister Frank-Walter Steinmeier during the first Merkel Grand Coalition government. This concept argued that change would come through economic interdependence, or Verflechtung. The growing authoritarianism of the Putin regime and the Russian invasion of Ukraine shook, but did not break this illusion. To this day, however, German investment and trade with Russia has done practically nothing to open up the political and judicial system of Russia or to reduce its rampant corruption. Based on data compiled by Transparency International, Russia ranks 137 out of 198 countries in terms of corruption and its score of 28 out of a possible 100 has not changed since 2012. There is little evidence of much Wandel here.

Tough on Trump, Soft on Xi

China is a much more different and more important matter, given its much greater economic weight. Both China and Russia have violated international agreements with impunity, Russia in Ukraine and China in its agreement with the United Kingdom on the “one country, two systems” concept for the status of Hong Kong. Like many other Western corporations, German companies like Volkswagen, Siemens, and BASF are manufacturing in Xinjiang province where Uyghurs and other Muslims are being held in interment and labor camps.

Chancellor Merkel has been silent and Altmaier argues that it might be “too risky to pursue a confrontational course” against China. Yet, there is more risk in dealing with a country which openly violates its international agreements and lies without any attempt at pretending they are doing so. Accommodation conveys weakness and invites further pressure and blackmail, undermining the economic and political objectives of the strategy.

While German leaders have been rightly critical of US President Donald Trump’s disregard for democracy and human rights, they have their own version of value free transactional policies with regard to China, Russia, Hungary, and other illiberal regimes. Merkel’s and Altmaier’s Christian Democrats (CDU) continue to welcome Viktor Orbán’s Fidesz into the European People’s Party caucus in the European Parliament; and the government has no qualms about German car makers continuing to invest in Hungarian plants.

Thus, Berlin is not likely to use its EU presidency in the second half of 2020 to stand up to Orbán and to the consolidation of illiberalism in Poland. The current discussions in the EU about a COVID-19 fiscal stimulus package raised the issue of tying economic support to the rule of law, specifically in regard to Hungary, but this was kept out of the European Council’s final agreement.

Time to Change the Tune

With Germany presently at the EU’s helm, this would be the time to show that the EU stands for more than just economic power. Non-governmental organizations like Transparency International and German foundations have promoted a more values-based approach including support for democratic reforms, but so far Merkel’s government has fallen far short of expectations that Germany can be a leader for liberal values.

This is the more troubling since Germany’s geo-economic position is under threat from both China and Russia. The issue of intellectual property rights, equal and reciprocal access to the Chinese market, and the role of Chinese investment and takeovers of German companies in key sectors is central to Germany’s continued economic power and independence. This was pointed out last year in a major study by the German Confederation of Industry, the BDI. Russian investments, like Nord Stream 2, pose the prospect of Wandel in Germany rather than in Russia with the export of corruption and political influence buying in Germany itself, not to mention the continued waging of hybrid war by Putin in Germany.

As Lau pointed out in his 2013 article, demand for German products, investment, and expertise will survive a more balanced and critical approach. The Chinese will continue to demand German automobiles and German technology even if the chancellor meets with the Dalai Lama or is critical of the suppression of democratic rights in Hong Kong. Putin will continue to pump gas and provide oil to the German market.

Germans need to learn the lessons of their neighbors. The UK spoke of a new “golden decade” of relations with China under David Cameron, but now Boris Johnson’s government has reversed course banning Huawei from the UK 5G network and sharply criticizing China’s violation of the agreement on Hong Kong. The French government under Emmanuel Macron has also taken a tougher line on Beijing (see also “Pariscope: Macron’s Entente Cordiales Against China”).

Germany is in a far stronger position than the UK to exercise its economic power to speak for its values. Along with Paris, Berlin is key to the development of a strong EU position on China, Russia, and on authoritarians in Europe. As Andreas Fulda recently argued in a commentary for the British think tank RUSI, “Europe can no longer afford Germany’s unprincipled and failed China policy of change through trade… While trade clearly matters, European values need to be defended too.”

NB. Noah Ramsey contributed research to this article.

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© REUTERS/Benoit Tessier

At a much-awaited launching event in early June, held together with his French counterpart Bruno Le Maire, German Economy Minister Peter Altmaier lavished superlatives on the cloud computing and data infrastructure project “Gaia-X”: According to Altmaier, it is nothing less than “perhaps the most important digital aspiration of Europe in a generation”—a “moonshot” even.

Indeed, Gaia-X is intended to be a silver bullet. Altmaier wants to tackle the fact that Europe is badly behind the United States and China in terms of cloud services and data availability, be it for nation states, companies, or citizens. Thus, Europe’s striving for “digital sovereignty” is motivated by the fear of losing out in terms of innovation capabilities amid growing market dependencies and data privacy concerns.

A Brief Ride Through the Clouds

Simply put, cloud computing provides IT services—such as procession power, data storage or specific applications—over a network of servers, operating independently of location and devices while being accessible via the internet. But not all cloud services are equal. Roughly speaking, three different delivery models of cloud computing can be distinguished.

When cloud providers deliver access to basic data storage or other computing resources, we talk about “Infrastructure as a Service” (IaaS). Clients buying IaaS services access storage and servers via a “virtual data center” in the cloud, and not through a costly and labor-intensive on-premise IT infrastructure. Due to its “pay-as-you-go” business model, it is highly flexible and scalable as needed. Using “Platform as a Service” (PaaS), clients can additionally access tools to develop and host user-defined applications on a cloud-based platform. And then there is “Software as a Service” (SaaS), where consumers use ready-to-use applications and software on the cloud. Managed by a third-party vendor and hosted on a remote cloud network, the SaaS approach is the most frequently utilized cloud business model.

Companies have different options when accessing cloud-based computing capabilities, including exclusive organization-based “private clouds” that promise a higher degree of control and security over firm-owned data and “public clouds” run by an external cloud services providers. These can be combined in different ways: for example, a “hybrid cloud,” that outsources non-critical information to a public cloud while protecting a firm’s critical data on a private one, or “multi clouds,” which use multiple public cloud providers in order to benefit from the individual advantages of each provider.

And then there is “Edge Computing.” Instead of moving data to a central cloud, this brings computation and date storage closer to the device or data source, thus away from distant data centers towards the edge of the network. This leads to faster data processing and low-latency levels, important requirements for innovation such as autonomous driving, smart cities, or smart industries—they all rely on the almost real-time availability of data and processing power. In sum, cloud and edge computing offer services lay the foundation of the digital economy, driving innovation and economic competitiveness.

Europe as an Also-Ran

Given this importance, the cloud market is highly competitive and has rapidly grown lately;  total revenue was $96 billion in 2019, over twice as much as in 2017. With over two thirds of the market share, Amazon Web Services is leading the cloud computing market (including PaaS and IaaS models as well as hosted private cloud services), followed by Microsoft Azure, and Google Cloud. When looking at the SaaS cloud market, which is the largest market segment of the three cloud models, US providers are again in the global lead: As of 2019, Microsoft had a market share of 17 percent, followed by Salesforce with 12 percent and Adobe with 10 percent. Notably, Germany-based SAP is one of the top five providers in the SaaS market—one of the very few notable European players in the global cloud computing market. Meanwhile, Chinese tech giants are trying to break the strong US dominance. Alibaba  and Tencent recently announced that they were each investing billions of dollars over the next couple of years in cloud infrastructure. However, US providers have traditionally a strong presence in Europe, while Chinese firms are less represented.

The strong dependency on cloud services of American tech companies also raises legal and data privacy concerns. In that context, the US Cloud Act is a contentious issue since it theoretically compels US companies to grant US agencies access to critical information. The problem: this might even apply when data servers are located outside of the US. Therefore, the law possibly opens the door for US agencies to access data of European companies and citizens. Particularly from a European perspective, where regulation explicitly protects and strengthens the integrity of an individual by giving them power over their data under the General Data Protection Regulation (GDPR), the Cloud Act has been subject to heavy criticism and has ignited a debate among legal experts

Gaia-X: The Silver Bullet?

How does Gaia-X fit into this universe of data and clouds? The prestigious Franco-German project is attempting to tackle the mentioned predicaments by aiming at reducing overall external dependency, protecting data to European standards, and promoting innovation. However, strictly speaking, it skips the extreme difficulty of creating a new, competitive European hyperscaler. Instead, it envisages connecting different existing providers to establish a central, federated data infrastructure system. This ecosystem is supposed to be open to all interested cloud providers, as long as they accept the technical requirements of Gaia-X and the specific architecture reflecting European data privacy standards.

Gaia-X will be steered by a Belgian non-profit organization which has been founded by 22 German and French companies, including SAP, Deutsche Telekom, Orange, and Atos. The first prototype of Gaia-X should be ready by the end of the year. According to Gaia-X’s technical architecture unveiled in June 2020, it will encompass the three cloud computing models IaaS, PaaS, and SaaS as well as Edge Services. Furthermore, with various providers operating in one standardized infrastructure, Gaia-X is supposed to allow for individualized strategies of companies for multi-cloud approaches.

Decreasing dependency on US providers is a core aspect of Gaia-X by facilitating control over data. Firms are supposed to have a choice on handling and storing with the help of clear set standards and regulations—an idea also embraced by the recently issued EU Data Strategy. Although Gaia-X mainly functions as an alternative to already existing providers, non-European market participants can also join, when they adhere to the strict data privacy standards of Gaia-X. Furthermore, Europe’s future competitiveness is among the objectives of the project. With the possibility of accessing large data pools, framed by an open source approach and coherent standards, a significant amount of data should become accessible feeding smart machines or Artificial Intelligence (AI) systems.

Scarce Funds, Complex Implementation

But before Gaia-X can turn into a success, the initiative has to deal with huge obstacles: The enormous investments Chinese and US hyperscalers have made in cloud infrastructure run into billions of dollars on a yearly basis; in contrast, Gaia-X private and public investments will only amount to a two-digit millions figure, according to current plans—a comparatively small amount for a project of such complexity. Moreover, the technical implementation is highly complex, raising the question of whether Gaia-X—the enthusiasm of its French and German founding members notwithstanding—can convince on operability, cost, and applicability. If not, Gaia-X will have a rough ride growing into a pan-European project.

However, Gaia-X may still show the way. Its concept indicates that “digital sovereignty” is not defined as having “mastery and ownership”—a term used by European Commission President Ursula von der Leyen—over key technologies and operating its own hyperscalers in this particular context. Moreover, the “European Cloud” intends to achieve this overarching goal by setting clear rules and standards and protecting its own values. The journey to the moon may still end up in a crash landing; but at present it looks like the best shot Europe has at safeguarding its technological competitiveness.

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