Kowtowing to Berlin, or, Niebelungentreue bis zum Untergang?

The smoke is beginning to clear from the EU summit, and the results are not encouraging. We can now start reading between the lines to discover two main results:

1. They still don't get it, and now with a vengeance (economically speaking);
2. The purported hidden agenda has finally raised its ugly head (politically speaking).

 The "fiscal union" emerging out of the revamped Stability Pact is nothing of the sort. It does not provide for any automatic transfers from prospering to depressed regions like any true country has nowadays (in Germany it is the "Laenderfinanzausgleich" between the Federal states). What is good enough for Germany domestically apparently is anathema at the European level. Second, it is procyclical rather countercyclical, forcing countries in recession to further cut their budgets. Kevin O'Rourke spells this out thoroughly in a recent blog. Thus in the name of stability it is throwing one of the great accomplishments of twentieth century statecraft out the window - automatic stabilizers (unemployment insurance, budgetary transfers) and discretionary fiscal stimulus programs - that have succeeded in moderating the business cycle since WWII. Germany's own Kurzarbeit program is one of the best examples of such a successful policy. Not only will this not contribute in any way to the immediate problem at hand - the looming disintegration of the Eurozone - but, should the EZ by hook or crook survive, would convert it into a pact for mutual impoverishment. Germany has made no concessions to provide any expansionary impulse, placing the burden of adjustment entirely on the periphery. It is even still unclear whether this finally provides the fig leaf  for the ECB to unleash a defense of Italian and Spanish sovereign debt, something I have no doubt the markets will start testing when they reopen tomorrow. Germany has thus succeeded in foisting the "fiscal irresponsibility" fairy tale (the contemporary "Dolchstosslegende" - the "stab-in-the-back legend" coming out of WWI?) on the rest of the EZ, exploiting the Euro crisis that it has most contributed to exacerbating to bludgeon the other members into acquiescence.

And the "hidden political agenda"? Tony Corn places the European summit within the broader historical context of Germany's designs on Europe since unification in 1871. Just as Prussia converted a customs union among the German states into a Prussian-dominated German Empire, he sees modern-day Germany as freeing itself from the last shackles of the postwar European/Atlantic order to impose a naked power grab on the EU17 (Kleindeutsche Loesung), while excluding countervailing powers (Austria in the Grossdeutsche Loesung, Great Britain today in the EU27 large Europe). So no one should be shedding any tears in Berlin that Cameron has voluntarily excluded his country from the German-enforced new framework, even if outside observers can take issue with his reasons. Even Der Spiegel commentator Christoph Schult is incensed at the return of the "ugly German." While I am still reluctant to sign off on the hidden agenda theory of either Cornian or Connollian provenance, the alternative obtuseness theory is equally unconvincing.

The irony of this coup, however, is that it will inevitably be a Pyrrhic victory. Merkel has terrorized her fellow passengers on the EU17 into making her unchallenged captain of the already leaking ship by spiking it under the waterline with additional holes. She will have only a short time to enjoy the pleasures of her victory before the ship finally capsizes, mostly due to her own Machiavellian ploy. I have nothing against German leadership in Europe, but leadership requires not only an ability to intimidate one's partners, but also the ability to forge institutional ties that are mutually beneficial and elicit voluntary cooperation. This is an aptitude that has always been singularly lacking in German elites. Niebelungentreue did Germany an immense disservice in two world wars. I fail to see its value now in a post-summit Europe.