When Berlin broke with its frugal tradition and opened the spending taps this year, a senior official in the German Economy Ministry was flabbergasted that the European Commission was complaining instead of showing gratitude.
For years Germany has been berated by the commission – the powerful executive arm of the European Union – as well as by the United States and the IMF for what is called a “fetish” to balance its budget. Now that she had released 1.2 trillion euros ($ 1.4 trillion), EU competition chief Margrethe Vestager has complained that she is giving German companies an unfair advantage.
Germany has therefore decided to assert itself. Rather than displeasing in public, officials mounted a vigorous behind-the-scenes lobbying operation to defend the spending plans, according to a senior official familiar with the talks, who spoke on condition of anonymity. It worked.
“Everyone has asked Germany to spend more and now Germany is spending,” Vestager said at an event in Berlin on September 7. “So I think we should make the most of it.”
This is a telling example of how Germany has become much more explicit and without excuse about doing things in Europe. This is manifested in its tightening of rules on foreign investment, its efforts to coordinate the response to an increasingly powerful China, and its willingness to challenge Russia over the poisoning of opposition leader Alexei Navalny.
“The world has changed,” said Andreas Laemmel, head of economic affairs for Chancellor Angela Merkel’s ruling bloc in parliament. “If we continue as in the past, then Europe will become a simple industrial museum.”
Part of it is a generational change. The leaders who grew up in the shadow of World War II were content to limit Germany’s place on the world stage to the economic sphere, but they are giving way to those who read about the Nazis in the books of story: Merkel is the first chancellor born after the war. Enough time has passed that the German force is no longer a frightening proposition.
And in part, it’s a recognition that Germany has no choice but to get to work with Europe caught in the midst of a growing conflict between the world’s two superpowers.
Under Donald Trump, the United States has become an unpredictable and even hostile ally, while Xi Jinping praises multilateralism as China grows ever bolder in its forays into international relations.
Merkel intended to make a summit with China the centerpiece of the German EU presidency which will run until the end of this year, but the coronavirus has shattered that plan. Instead, Merkel and Xi will set up a video conference on Monday with senior EU officials.
In a September 10 interview, Finance Minister Olaf Scholz acknowledged that the current landscape means that Germany must take on “more responsibility”, which means maneuvering the Brussels machine, especially with Brexit still on the table.
German officials fear that Vestager and his colleagues are locked into a rule-driven mindset made for another era, lawmakers from Merkel’s Christian Democrats and the Liberal opposition group say.
This thinking puts too much emphasis on the risk of internal tensions between EU states and underestimates external threats, lawmakers said. To cope with these perils, the EU must better combine the economic power of its governments and companies, the Germans concluded.
This means allowing more state intervention and investment, relaxing the competition rules that hinder giant mergers, and strengthening financial ties between member states.
If the Germans are successful, it could spark a wave of corporate alliances in sectors ranging from telecoms to banking to defense. They are already directing billions of euros into new industries like batteries and cloud computing.
“For the outside world, it must be amazing how much inward-looking Europe is,” said Matthias Heider, Christian Democrat Vice-President of the Bundestag’s Economic Committee. “Europe needs to focus more of its attention outside our borders and find answers to the growing challenge posed by China’s growing economic strength.”
Merkel’s growing desire to get her European partners to accept a stronger German industry marks a break with Berlin’s historic relationship with Europe.
The post-war Chancellor Konrad Adenauer gave his say in industrial policy by laying the foundations for what would become the EU. A generation later, Helmut Kohl’s memories of his wartime childhood convinced him to give up the precious Deutsche Mark to forge a single European currency.
When Germany exerted its influence during this time, it focused on making rules to constrain national governments. Kohl officials criticized the EU competition regime Vestager now oversees in the late 1980s and fought to ensure that it left no room for French interventionism.
The seeds for this change were sown in August 2016, when German officials felt compelled by EU rules to let Chinese group Midea buy robot maker Kuka. At the time, a senior German official involved in finding ways to try to block the deal said he believed the Chinese were taking advantage of the liberal European regime to procure critical technologies.
The idea took root last year when Vestager blocked plans by German company Siemens AG and French Alstom SA to create a giant European train manufacturer. The German Minister of the Economy Peter Altmaier and his French counterpart Bruno Le Maire then committed to changing the rules of competition.
Today, the alliance between Germany and France is causing major changes in the way the European economy is run.
Altmaier even attempted to push for a tie-up between Finland’s Nokia Oyj and Sweden’s Ericsson AB last year to counter China’s Huawei Technology Co., an official familiar with the discussion said, though the plan met with little. enthusiasm on the part of the companies – spokespersons for both declined to comment.
The next part of their strategy is to target the competition rules, the touchstone of the single market. The Germans aim to make progress in breaking down barriers to future European champions by the start of next year.
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