While sclerotic Western economies such as Britain and the US struggle to escape the shackles of the credit crunch, Germany is roaring ahead.
The country formerly known as the Sick Man of Europe is growing at its fastest rate since reunification. Its flourishing industry is rocketing at a 10 per cent year-on-year pace, and unemployment has tumbled to 6 per cent against 7.6 per cent in the UK.
The country’s businesses are finding it so hard to fill posts that some are scouring for recruits in crisis-struck periphery countries such as Spain, according to trade unionists. While the British Work and Pensions Secretary Iain Duncan Smith demands tough curbs on immigration, Berlin is easing barriers to allow more skilled foreigners from outside the EU to plug skills gaps.
With swelling economic power comes added geopolitical weight. Last week Premier Wen Jiabao flew in a battalion of Chinese ministers to hold an extraordinary joint Cabinet meeting with Chancellor Angela Merkel, before signing deals worth €10.6 billion (£9.6 billion). That dwarfed £1.4 billion of contracts sealed with Britain the previous day and further cemented Germany’s status as the economic focal point of Europe.
Yet there is no sense of triumphalism in Berlin to accompany its stunning turnaround from the great recession — far from it. The down-at-heel capital, once dubbed “poor but sexy” by its mayor, seems steeped in angst. Instead of riding high on a tide of prosperity, Ms Merkel is divided from a German electorate that is seething about the botched handling of the eurozone debt crisis.
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The Chancellor stood up early last year to declare that there was no possibility of extending rescue loans to the bedraggled citizens of Greece. A year and a half later, the position has changed radically: European ministers are now on to bailout number two and were still squabbling last weekend over the best means of corralling the private sector into participating. Politicians say the mood in German constituencies is increasingly acid and isolationist, as frugal citizens watch politicians engage in repeated U-turns to pour tens of billions into a seemingly bottomless financial cistern in Athens.
Half of the German electorate favours kicking Greece out of the euro, and 71 per cent in a recent survey expressed little or no faith in the single currency. As Carsten Schneider, the opposition SPD’s budget spokesman in parliament, put it to me, a sense of “permanent stop and go” is eroding confidence not only in the single currency but politicians in general. “My impression is people don’t trust us,” he said bluntly.
Germany’s relationship with the euro has always been a marriage not of love but of convenience. If the electorate descends into a mood of British-style euroscepticism, market confidence in the future of the troubled single currency will fray.
This splintering between politicians and voters could hardly come at a worse time, because public trust right now is a vital commodity. Members of the single currency are going to have to surrender further fiscal sovereignty and sign up to new binding rules and centralised scrutiny if the euro is to be put on a sustainable footing.
Thomas Mayer, the chief economist of Deutsche Bank, argued in a note on Friday that there is a “significant risk of an eventual break-up of EMU” (European Monetary Union) if today’s crop of politicians proceed along their current, haphazard path.
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Either a significant step is needed towards political union in the euro area — which he views as unrealistic — or the two original, crumbling pillars of the Maastricht Treaty need to be restored.
The latter option means the European Central Bank focusing solely on protecting the currency’s purchasing power — not monetising public debt — and governments being made solely liable for their own budgetary blunders.
The trouble is that concerted political action in either direction is increasingly difficult given the rising tide of populism across the European continent. The infamous “True Finns” failed to transform the political scene, but there is deep disquiet in Berlin about the popularity of Marine Le Pen, France’s glossy, far-right presidential aspirant, at a time when the release from house arrest of Dominique Strauss-Kahn leaves that country’s political future even more unclear.
And while the German parliament itself remains relatively untroubled by populist parties, the ever-practical Ms Merkel appears to lack the appetite to go out and sell a radical programme of euro area reform to her electorate.
Some German politicians clearly realise the scale of the task ahead. Steffen Kampeter, the State Secretary at the Ministry of Finance, acknowledges there are “populist tendencies in Europe that are challenging the existing European consensus”. The answer, he says, is not to leave the likes of Greece to their own devices but to “redefine and rejustify” the necessity for more integration.
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“The simplistic notion that we should leave Greece to deal with its problems on its own is naive, economically wrong and politically disastrous. We must fight it,” he said.
Previous attempts at monetary union in Europe — the Latin Currency Union of 1865 to 1914 and the Scandinavian Monetary Union of 1872 to 1924 — dissolved amid bouts of debt monetisation and fiscal incontinence. The current one will only survive if governments put an end to the sense of drift.
That will require Germany to show vision on top of its economic heft.