Déjà Vu: Germany Tightens Its Economic Power Over Europe

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This article originally appeared at Truth-out.org

Germany's leaders herded their European counterparts into imposing harsh austerity on Greece. It was the price, they insisted, that Greece had to pay to receive bailout credits from the European Union, European Central Bank and International Monetary Fund (IMF). The Europeans required those bailout credits to be used mostly to pay back loans the Greek government had gotten earlier from private banks (chiefly German, French and Greek). Those credits could not be used to get Greece out of the 2008 crash that afflicted all of Europe.

Those private banks had gladly and profitably pushed too many loans onto the Athens government for many years. When the 2008 global crash brought forward the moment when the Greek government could no longer carry its bloated, excess private debts, default loomed. Had that happened, those private banks would have required second bailouts (their first occurred in 2008-2009) from their governments. But the speed and generosity of those first bailouts had enraged much public opinion in France, Germany and Greece. A second bailout, required if Greece had defaulted, would have finished those countries' leaders' political careers. Cleverly, the leaders arranged for those institutions to lend to Greece to pay off its private creditors: no need then for second bailouts.

Germany pushed hardest for the harshest Greek austerity.

To cover this maneuver with "public relations" distractions, German Chancellor Angela Merkel and others promised to require Greece to undergo a tough austerity treatment, portrayed as economic pain and punishment that Greeks brought on themselves. It was necessary "medicine" that would soon deliver economic recovery. All leaders everywhere promised and still promise recovery to austerity's victims. In fact, since 2010, austerity brought Greece further economic decline, not recovery. Indeed, recoveries proved elusive or painfully slow for most Europeans as they struggled with austerities of varying intensities.

Germany pushed hardest for the harshest Greek austerity. That too was a maneuver for domestic political advantage. Merkel loudly depicted herself as protecting Germans from higher taxes (to pay Germany's share of any future institutions' bailouts of European countries like Greece that did not repay their debts). Merkel and her finance chief rigidly refused to relieve Greece of its debts (even though the IMF and countless experts said openly that Greece's debts were simply "unsustainable" and could never be paid). Merkel's refusal meant that Greeks' tax payments would go not for roads, schools and hospitals, nor to rebuild a crisis-shattered economy, nor to pay and pension Greek public workers. Greeks' taxes must instead be used to service Greece's debts to the institutions for limitless years into the future. Merkel's posturing served her domestic political purposes, but at a huge cost for Europe.

The richest European economy - Germany - imposed massive suffering onto one of the poorest economies in Europe. This was to help defray three huge costs associated with the 2008 global capitalist crash for which Greece, a tiny country, bore minimal responsibility. The first cost was a badly imbalanced eurozone economy leading to 2008. German exports (at carefully managed prices lower than elsewhere in Europe) were financed then by excessive German private bank loans to Greeks and others who purchased those German exports (at the expense of their own countries' producers) while accumulating excess debts. The second cost was the crash itself that brought Greece severe unemployment and economic contraction as revenues from tourism and shipping collapsed. The third cost was the bailout of European (including Greek) private banks and Merkel's maneuver to forcibly convert Greek government debt to private banks into debt owed to the institutions. Denying Greece massive debt relief meant and means heavy austerity.

Alongside the Greeks, many other Europeans now grasp what awaits them too in the "unified Europe" that German leaders are constructing and using. Yet the Portuguese, Irish, Spanish, Italian and other poorer (relative to Germany and France) people want a differently unified Europe. With troubling historical echoes, German leaders once again seek to force a particular kind of capitalist unity onto Europe. The weapons this time are economic and political instead of military, but they too provoke resistance. Europe risks severe divisions and disunity with serious ramifications for the world.

Echoes of Past German Economic Imperialism

In the second half of the 19th century, private capitalists in the smaller states that would later become Germany confronted major problems. Those states' politics and cultures still reflected a feudalism that resented and often undermined capitalists. The latter faced tough competition from other, more advanced capitalists and especially the British who dominated world trade. Germany came late to colonialism and kept encountering obstacles from competing colonial regimes, above all the British. Capitalists in what became Germany were also discovering a new and growing threat from their own employees. The latter articulated an anti-capitalism from below that envisioned and pursued an alternative, socialist future without private capitalists in it.

The "solution" fashioned by their leader then, Otto von Bismarck, mobilized government support for the growth of German capitalism. Bismarck allied that policy with selective reinforcements of the remaining Prussian and wider German feudalism to build a strong governing coalition. On that basis he sought to blunt the growing socialist workers' movements by constructing the first modern welfare state apparatus. Finally, he forcefully projected a new German colonialism as a major player within capitalism's global imperialist expansion. Holding together this complex set of policies was the glue of intense German nationalism mobilized by Bismarck's wars to unify the diverse smaller sovereignties into one German nation. Yet those wars had other, contradictory effects, including the Paris Commune, which gave a powerful stimulus to socialism and socialists everywhere.

On the one hand, after 1870, Germany became an imperial power on the world stage. On the other, German socialism kept growing. Likewise the competing colonial capitalisms, especially the UK, also became bigger threats. When this dangerous mix exploded in 1914, the German kaiser intensified German nationalism to gain the domestic unity needed to wage war. Germany lost the war, and the Bismarck system dissolved. A socialist and tentatively internationalist Weimar period ensued, but it was hobbled by war debts and oppositions from nationalists determined to revive a German empire.

The eurozone accelerated the boosting of German development at the expense of development elsewhere in Europe.

When the 1930s depression hit Germany, a new nationalist upsurge repudiated the country's history since 1914. The Nazi form of nationalism promised a better, more successful version of Bismarck. It would destroy socialism from below by substituting a fascism from above. A new alliance of private German capitalism, feudal remnants and a powerful state would hold it all together. Nazi fascism aimed to manage and militarize German capitalism to dominate Europe and regain its lost colonial power beyond.

The Nazis rebuilt German industrial power by means of a state-private capitalist partnership imbued with intense nationalist fervor and fascist ideology. But that proved insufficient to win a second world war or to reconstruct a German empire. Losing the war also split the country in two, as East and West Germany, opposing front-line states in the Cold War. After 1945, the combination of wartime destruction, debt and reparations burdens, and the global capitalist preeminence of the United States overwhelmed West Germany and undermined its reconstruction and growth. West Germany then appealed for and obtained massive debt relief from the US, UK and France in 1953 (precisely the sort of debt relief it now refuses to grant Greece). In exchange, it served as a bulwark against the USSR and Eastern Europe.

Debt relief enabled a German resurgence - celebrated as a self-congratulatory "economic miracle" orWirtschaftswunder. Economic growth funded an expanded welfare state to engage the West German working class as a partner (or at least neutralize it) for Cold War purposes. Again using nationalist imagery, the prevailing ideology defined West Germany as an alliance (not the near merger à la Nazism) of private capitalists, the state apparatus and labor unions that enabled the latter to claim credit for the welfare state as "social democracy." Germany's Socialist Party dutifully broke with its Marxist past first to join the alliance and eventually to become a ruling partner in governing coalitions with German "conservatives."

The post-World War II expansion of the West German economy was export-oriented. German exports kept competitive by deftly using the alliance among capitalists, the state and unions to organize a kind of unofficial price-and-wage control. This kept German prices from rising as fast as prices elsewhere in Europe, both before and especially after the creation of the common currency or eurozone.

Effects of the Eurozone

The eurozone accelerated the boosting of German development at the expense of development elsewhere in Europe. Germany's prices were and remained lower than the rising prices nearly everywhere in the eurozone. This facilitated German exports, boosted profits from those exports and began the recycling of those profits through German banks to become loans into the eurozone. Many countries in the eurozone were damaged by the competition from German exports, yet were also caught up in the euphoria that European unification guaranteed them economic expansion, sooner or later. Thus they were eager for the expanded loans that German banks were eager to make to other eurozone governments (e.g. Greece), to banks in eurozone countries (e.g. Spain), and to firms and individuals throughout eurozone countries. Neither borrowers nor lenders were adequately careful in assessing the real risks associated with fast-rising private and public indebtedness. Debt papered over growing disparity within Europe much as debt in the United States (e.g. subprime mortgages) papered over the rising inequality generated since 1970 by stagnant real wages coupled with rising productivity and hence profits.

Profits piled up in Germany in direct proportion to rising indebtedness across the eurozone.

Yet another boost to German economic growth including exports was German reunification in 1990. It delivered to German capitalists a vast new supply of highly trained, industrially disciplined, very productive former East German workers. Best of all, they were used to lower wages than their Western German counterparts. None of Germany's capitalist competitors in Europe, Japan or the United States enjoyed anything comparable. The latter may have obtained mass immigration of low-wage workers but they were not as well trained, disciplined or productive as the former East German workers.

The eurozone also facilitated German exports outside of the eurozone. The single currency settled into an exchange rate with other major currencies (e.g., the US dollar, Japanese yen and so on) that reflected all eurozone member economies. In that way, German exports benefited from a lower relative value of the euro than would have been the case if the old deutsche mark currency had remained and reflected just Germany's economic strength and its relationship with trading partners. The other eurozone members thus subsidized German export success through the eurozone's exchange rate - much as they also subsidized that success by allowing their price structures to rise relative to Germany's. German banks lent to other eurozone members the funds that often found their way back to Germany as payment for German exports (much as earlier Marshall Plan loans to Europe found their way back to the United States to pay for US exports).

Profits piled up in Germany in direct proportion to rising indebtedness across the eurozone. That rising debt masked or at least distracted attention from the underlying, widening inequality within Europe. The basic contradiction - that such German development risked undermining its own conditions - was postponed, its explosive effects delayed. When this unsustainable arrangement reached its limits - when deteriorating economic conditions proved unable to sustain the costs of rising debt - governments, banks, non-financial businesses and individuals faced defaults. The cascading crash of 2008-2009 made the European situation - worse even than the parallel situation in the United States - deeply depressive ever since.

Risks of German Economic Strategy Today

German leaders' pursuit of the basic German economic strategy detailed above entails huge risks for Europe and the larger world. First, inside Germany, politicians, media and others have reverted to depictions of Greeks and other Europeans in poorer countries as lazy, overindulged in their dependence on state supports and profligate. Workers in these poorer countries are thus differentiated from hard-working Germans and others in richer European countries. Merkel in Germany presided over this sort of nationalistic character assassination in a way reminiscent of Mitt Romney's use of similar rhetoric during the 2012 US presidential campaign. His theme then was that 47 percent (his number) of Americans were lazy and drunk on entitlement to government handouts. He said these Americans voted Democratic to secure their handouts, whereas Romney and Republicans represented the "hardworking" majority. That argument failed to win the election for him, but it did contribute to the dangerous polarizations increasingly besetting the United States since. Where Romney exploited racial stereotypes and income differences, Merkel exploited nationalist stereotypes, quite a policy choice for a German leader given that country's history.

Inside Germany, politicians, media and others have reverted to depictions of Greeks and other Europeans in poorer countries as lazy.

Second, Merkel neatly deflected the economic problems inside Germany associated with precarious jobs, low income, part-time employment, reduced social services and austerity policies generally. These were ignored in deference to celebrations of the German government's vigilance to not let other Europeans take from them. Or they were recast as problems somehow related to "helping" other poorer Europeans who abused rather than appreciated that help. Moreover, Merkel's line affirmed, Germany's "help" to others was no longer affordable; Germans had done much but no longer could. This sort of argument transformed internal economic problems and policies into instead failures of others. It converted Merkel's rescue of private German banks with public European money as instead "help" to an inadequately grateful Greece. If German economic policies seemed harsh that was only because its victims' abusive past behavior left no other choice. Dominant German public opinion comforted itself in these ways.

In the official German statements lies a familiar inability to see, accept or admit the reality of how Germany interacted with the rest of Europe's economies in the decades leading to the 2008 crash. Those interactions were driven by German capitalist imperatives around revenues and profits. Their self-serving nature relative to many of their European partners was unsustainable in the long term. These interactions entailed a deepening inequality among and within European nations. In all these ways, they undermined the move toward European unity, more so than at any time in the last half century.

German capitalism in its way replicates the fundamental mistake of capitalists elsewhere. It does not know how or when to stop overstepping the limits of what the rest of society will endure and allow. No matter whether opposition comes from Greeks suffering absurd privations, from Germany's only real opposition party, Die Linke, from Pope Francis or from rising questions and challenges of capitalism per se around the world, German capitalism pushes ahead oblivious. It ignores especially its own past lessons about recasting internal economic problems as the fault of other, lesser people who deserve harsh punishment. Europeans everywhere recoil, again, from German foreign economic policies and their modes of articulation. Their worries about the sort of European unity Germany's economic dominance will yield are changing into opposition and resistance. Something ominous is underway, and the unfolding Greek tragedy-cum-resistance expresses it profoundly.


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