To paraphrase a Wall Street adage: bulls make money, bears make money, and PIIGS get slaughtered. Of course I’m referring to Portugal, Ireland, Italy, Greece, and Spain. Germany won’t bail them out again.
Germans work. The country’s unemployment rate stands at 7.5%, against an average of 13% for Europe’s so-called PIIGS. Those are heavily massaged estimates from the Organization for Economic Cooperation and Development (OECD). More revealing is a comparison of youth unemployment, now at 10% in Germany. By contrast, as Doug Saunders observed in the July 16 Globe and Mail, “The under-30 unemployment rate in Spain has just hit 44 per cent, twice the adult rate. Italy also has passed the 40 per cent mark, and Greece has gone even further. If you count all the people who’ve given up looking, it means the number of people between 20 and 30 who have any form of employment in these countries is something like one in five.”
There is another important distinction between the German ants and the southern European grasshoppers: Germans save. They had better, because three-fifths of them are likely to be over the age of 60 by the middle of the present century. Gross national saving in Germany last year stood at 26% according to the OECD, against about 16% among the PIIGS, whose demographic profile is just as bad.
Thrifty, hard-working Germans in May bailed out dissolute, corrupt, feckless, spendthrift and lazy Greeks, Spaniards, Italians and Portuguese. That, at least, is how it appears to the German public. The German term welsch refers to anyone from lands to the east or south of Germany. Martin Luther quoted the proverb Deutsche Treue, welsche Tucke, or “German honesty, welsche perfidy.” The German word for “gibberish” is Kauderwelsch, that is, trader’s pidgin from France or Italy.
As Wolfgang Proissi put it in a June essay for the Bruegel thinktank in Brussels, Germany “fell out of love with Europe.” The bailout package was hated. Proissi wrote:
“Once again we are the fools of Europe,” the headline of mass-circulation daily Bild read, adding, “750 billion euros for bankrupt neighbors, but our tax reduction is scrapped.” The highbrow Frankfurter Allgemeine Zeitung also issued a devastating judgement: “Since a transfer union has been effectively introduced and the central bank is now under political command, the fate of the euro as a soft currency and the failure of the monetary union are certain,” its editorial said. “Whoever holds savings or pension contracts should now be prepared for devaluation in the long run.” According to a poll carried out by the DGZ-Bank, 44 percent of Germans would like to scrap the euro immediately and have the deutschmark back.
Germany simply doesn’t need the rest of Europe as much as it used to. Even in the unlikely event that the PIIGS avoid a major debt restructuring, i.e. bankruptcy, their economies will be crippled for years.
German exports have crossed an important threshold: shipments to Poland, Russia and China (combined) now exceed those to France. The original European Community members are becoming less important to Germany and Eastern Europe and Asia are becoming more important.
Europe’s dependence on Russian energy supplies too often is the focal point of discussion of Russian influence over Western Europe. Why political influence should attend oil exports is far from clear; Mexico, Venezuela and Nigeria all export a great deal of oil to the United States, yet none of them has notable influence on America. Countries that want to sell oil generally take money for it, and except for the Arab oil embargo following the 1973 Arab-Israeli war, no oil producer in the past half-century has used the threat of cessation of supplies as political blackmail.
Germany’s long-term problem is not energy, but people. With constant fertility, three-fifths of Germany’s population will be aged 60 or over by mid-century, and it seems unlikely that the country’s fertility rate of around 1.3 births per woman will rise at the behest of natalist government policies. What Germany requires is exports that translate into savings, and it cannot get them from the turgid European economies around it – most of Europe is in the same demographic predicament with an average fertility rate for the continent of just 1.5.
Foreign policy analysts should focus more on Germany’s exports. Despite the country’s problems, it still excels in many areas, particularly industrial machinery. Germany has one more generation in which to turn its industrial prowess into a buffer of savings to allay retirement costs. It is in a race against time; it cannot afford to fritter away resources supporting the welschen to its south and east.
Failing demographics underlying an expensive welfare state make the European Union (EU) a failing proposition. It is a loser’s game in which the most benefits accrue to the weakest, and that is a game that Germany simply cannot afford to play.
Politically, the EU is the child of the Cold War, bringing the European members of the North Atlantic Treaty Organization (NATO) into a free-trade zone and eventually a currency union. America’s strategic mistakes under the George W Bush administration and strategic withdrawal under the Barack Obama administration have left Germany with less political reason to adhere to Europe.
As Russia moves into some of the political space left open by America’s withdrawal, Germany will orient eastwards to Moscow rather than westward to Paris. Germany is moving closer to Russia, proposing a Russian-European “cooperation on security” following talks between German Chancellor Angela Merkel and Russian President Dimitri Medvedev in June. A number of commentators, for example, Stratfor’s George Friedman, note the growing coziness between Berlin and Moscow.
But it is misleading to compare the Russian-German relationship to past periods in which land armies were the decisive factor in international relations. Unlike the Cold War, when Germany negotiated business agreements with Russia under the shadow of the Red Army’s guns, there is not much of a military dimension to this shift. Instead, a new growth area is emerging based on three elements: German technology, Russian resources and Turkish labor.
Russia is now Turkey’s closest ally, as Turkey breaks from the West and pursues a rogue foreign policy in the Middle East. Turkey has become the principal hub for Russian energy exports, while 7 million Turks or Turkish-speaking citizens of former Soviet republics in central Asia are working in Russia. Turkish construction companies and Turkish labor are building most of Russia’s infrastructure, replacing the dwindling supply of Russian labor.
Playing an inherently weak hand, Russia has been able to place itself at the center of Eurasian policy, using its energy resources to form alliances with Turkey on one side and Germany on the other. Europe is in danger of gradual dissolution as a political entity, and NATO’s southeastern flank has ceased to exist. Russia is the beneficiary of both. In this context, US Secretary of State Hillary Clinton’s tour is an unconvincing cosmetic exercise. American influence under the Obama administration has imploded, and Russia, despite its economic and demographic weakness, has moved into the vacuum.
Expect nothing dramatic from Berlin during the next year. Germany’s interest is to maintain stability in the eurozone for as long as possible. When the next round of the European debt crisis erupts, the Germans will not come to the rescue and the first cracks in the structure of the European community will appear, culminating in a Latin America-style debt crisis for Southern Europe.