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Angela Merkel is more responsible for Brexit than any other political figure in Europe, on either side of the Channel. She bears the greatest responsibility for the ‘Japanisation’ and austerity bias of monetary union. She exalts the German mercantilist trade surpluses that render the whole euro project ultimately unworkable.
We all feel fond of Mutti as she winds down her 16-year reign and ushers in her chosen successor: Armin Laschet, the "continuity candidate" and folksy operator who narrowly won the Christian Democratic leadership contest over the weekend.
The Chancellor is immensely popular. The low-key style of the vicar’s daughter has caught the German mood. She is one of the few European leaders still trusted over the handling of the pandemic. It is hard to think of any figure in Berlin better able to mask German hegemony and throw a reassuring comfort blanket over Europe.
But given the blizzard of superlatives over recent days - bordering on hagiography - some dissent is in order. Personality must be separated from policies.
Her Christian Democrat alliance (CDU-CSU) suffered its biggest defeat since the Second World War in the elections of 2017. The German political landscape fractured. Votes splintered in all directions. The hard-right Alternative fur Deutschland became the official opposition in the Bundestag.
Armin Laschet, the new CDU leader CREDIT: CHRISTIAN MARQUARDT/POOL/EPA-EFE/Shutterstock
Merkel held onto power because the two great Volksparteien - Christian Democrats and Social Democrats - clung to each other on the shrinking raft.
Her own personal standing is not transferable to Mr Laschet, the coal miner’s son still living in the coal age. He opened a new coal-fired plant (Datteln-4) last year, asserting with a straight face and Trumpian surrealism that it would be good for climate change. There goes Europe’s net-zero authority.
While Merkel has presided over an era of economic outperformance within Europe, it is not a Wirtschaftwunder by global standards. Germany has had one of the slowest growing economies in the OECD over the last quarter-century, slower even than Japan. Productivity growth has averaged 1.2pc annually since 1995, compared to 1.7pc in the US, or 3.9pc in Korea (OECD data).
Angeline Germany has echoes of the Brezhnev era. The immobilism is remarkable, a point made by both Marcel Fratzscher in Die Deutschland Illusion; and by Die Welt’s Olaf Gersemann in his book The Germany Bubble: the Last Hurrah of a Great Economic Nation.
The country was for a while able to ride the "China wave" as a supplier of capital goods for Asia. But China’s catch-up phase has since turned into import substitution at home, and mid-technology conquest abroad, more or less destroying the German solar industry in the process.
Germany has not made the digital switch in time – unlike Korea – and this is becoming existential as cars metamorphose into computers on wheels. Tesla is worth three times as much as VW, Daimler, and BMW combined. Apple dwarfs the entire market capitalisation of the DAX index.
Deutschland Inc is not worth much any more, a fate it shares with UK Limited. Merkel has presided over this structural decay. It is not her fault but nor has she done anything about it.
The German economy looks good only within the regional beauty contest of Europe. Others are in worse shape. The deformed structure of monetary union has had the effect of leveraging relative supremacy. Germany gained eurozone competitiveness in the early 2000s through an "internal devaluation". It compressed real wages through the Hartz IV reforms.
Once southern Europe had slipped behind within the closed deflationary structure of the euro, the only way to claw back ground was to carry out their own internal devaluations, a near impossible task against the German anchor. The effect of hairshirt policies in so many countries at once was to tip the whole system into a contractionary vortex.
Merkel did not create this structure but she has never questioned it either, or explained to the German people why it has to change. Her government imposed austerity overkill on Club Med through its control over the key bodies in the EU apparatus. The burden of adjustment fell on the debtor states, not the creditors. This cannot work.
She let the eurozone debt crisis (actually a capital flow crisis) fester for three years before contagion to the Italian and Spanish debt markets forced her hand in June 2012. Only then did she agree to let the European Central Bank assume its role as lender of last resort. It took direct intervention by Barack Obama to extract this concession.
Merkel then reneged on a summit deal for full banking union. The sovereign-bank "doom loop" remains in place and is even larger today.
She resisted the necessary move to fiscal union at every stage. When the pandemic hit she agreed to a one-off Recovery Fund that reverts to the status quo ante over time, heading off permanent debt mutualisation. In short, she has spent 16 years refusing to rebuild the euro on workable foundations. Her idea of fiscal union is fiscal surveillance: the Stability Pact, Two Pack, Six Pack, and the Fiscal Compact. She bequeaths a broken system to her successor.
This mismanagement of monetary union altered British perceptions of the EU before the Brexit Referendum. It also led to the migration of several hundred thousand economic refugees from Southern Europe, and displaced flows from Eastern Europe into the UK. This combined into a perfect storm with Merkel’s precipitous decision to go it alone in 2015 and open the floodgates from the Middle East, ignoring David Cameron’s counsel that the Syrian refugee crisis was best handled in the Levant.
By then, of course, the Chancellor had already sown the seeds of British exasperation. It began in earnest when she resuscitated the European Constitution – rebranded the Lisbon Treaty – after it had already been rejected by the French and Dutch people in referenda. Her motive was obvious. It increased the German voting weight in the EU institutions.
This was a legitimate step to reflect Germany’s increased population after East-West reunification. But it also changed the EU’s character. Germany was no longer primus inter pares in an intergovernmental confederacy. It became primus sine pares in a proto-federation. Chalk and cheese.
France strangely allowed this loss of sacred parity to slip through. Nicholas Sarkozy was fobbed off with a few baubles. Tony Blair pretended it was just a cleaning-up exercise. The treaty was rammed through the EU Council by executive fiat. Nobody wanted to face voters again. Only the Irish were given a referendum. When they voted no, they had their feet held to the fire, and were made to vote again.
Merkel’s Lisbon Treaty was a watershed moment. It is one thing to advance the project by the Monnet method of stealth, it is another to do so once major proposals have been explicitly rejected by electorates. It further undermined the EU’s legitimacy among a coterie of British politicians, commentators, and financiers, and these people would later matter.
The treaty gave the European Court of Justice jurisdiction over all areas of EU law for the first time, upgrading it from an economic tribunal into a supreme court. The Charter of Fundamental Rights became legally binding. The ECJ suddenly acquired the means to rule on anything. It has since used that power expansively, as the German constitutional court, ironically, protests with irritation.
The Common Law protocol in the treaty exempting British courts from such encroachment was ignored before the ink was dry. The European Court began to strike down British laws on criminal procedure or data sharing with the US intelligence agencies. Another slice of influential British opinion peeled away.
Chancellor Merkel persisted. She circumvented a British veto of the Fiscal Compact, ramming through the treaty by other means, and visibly isolating the Prime Minister. All Britain had asked for was a safeguard clause for the City.
She installed ultra-integrationist Jean-Claude Juncker as Commission chief against British objections. This violated the Brussels convention that no major state is ever overruled on this key post. She refused a compromise despite warnings from David Cameron that a taste of Junckerism would further erode British consent for the EU, as proved to be the case.
If it is in Germany’s national interest to keep the UK tied deeply into the European system – and few Germans dispute that – one can hardly argue that she made a good fist of it. She meddled enough with the constitutional machinery of Europe to irritate the British, but not enough to sort out the EU’s real problems or to make monetary union fit for purpose.
"Mutti" is an admirable person and a canny, tactical politician but she will leave a set of unstable equilibria, a polite way of saying a trail of wreckage. If Laschet is the continuity candidate, Europe needs help.
