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posted on 27 September 2017

The World That Awaits The Next German Leader

from STRATFOR

-- this post authored by Adriano Bosoni and Mark Fleming-Williams

Now that the 2017 German elections have wrapped up, the process of forming a government and determining exactly who will lead the country is underway. Negotiations to determine the members of the governing coalition could take weeks or even months, but to some extent, it doesn't matter who is named chancellor in the end. The challenges that the next leader of Europe's largest economy must tackle will broadly be the same, whether Angela Merkel returns to the chancellery or not. The country's next government will have to satisfy the same set of national imperatives while dealing with the same outside pressures that shape its options in setting a national strategy. To understand the strategy, it's first necessary to explore these imperatives and surroundings.

Germany's Imperatives

Germany's imperatives are largely bound up in its membership in the European Union, to which it has committed much of its sovereignty. The country's primary imperative, beyond the most basic territorial integrity issues, is to preserve and expand its national wealth, much of which is tied to exports. One of Germany's chief economic concerns, therefore, is to sustain external markets for its products. In part, its commitment to preserving the integrity of the European Union is tied in with that imperative: The European Union absorbs 58 percent of German exports, meaning that this captive market represents an economic platform upon which Germany's well-being rests.

Exports of Goods and Services as a Percentage of GDP

But economics is not the only reason behind Germany's second imperative, which is a commitment to maintaining the European Union. After World War II, the decision to create an ever-closer union of traditional adversaries was driven largely by the desire to protect their populations from the danger of future wars. Seventy years later, that logic still holds.

The third German imperative is to protect the European Union's territorial integrity. Every government wants to protect its national borders, and the pooling of sovereignty required by the European Union means that in addition to focusing on its own borders, Germany's wider concerns are protecting those of its partners as well. In this case, that protection isn't limited to just countering direct military threats, but also warding off security threats, population disruptions and external interference.

The Shifting External Challenges Thrust Upon Germany

Over the next four years, the German government will face substantially different challenges than it did after the previous elections in 2013. For Germany, the last four years have largely been an exercise in damage control, as EU sovereign debt crises have intersected with immigration crises and the Ukraine crisis of 2014. While the next four years could prove equally tumultuous, the new German leader will come to power at a moment of relative calm: European growth has recovered, the migrant crisis has faded to a low rumble, and the Ukraine conflict is in a simmering stalemate. Instead of merely reacting to crises, Germany's next leader is likely to face more strategic decisions. Germany will have to pick its path carefully through its new surroundings.

The crises of the last decade have taken a heavy toll on the European Union. When it's thriving, the European Union's power is largely normative - the example it sets of economic success and well-being radiates outward from the Franco-German core and acts as a magnet attracting other countries toward it. The sovereign debt crises and economic stagnation of 2008-2016 not only diminished this attractive force, they actually reversed it, as peripheral countries such as the United Kingdom, Poland and Hungary began to drift away from the center, formalized in Britain's case by the decision to leave the bloc. Meanwhile, the environment outside the European Union has become more dangerous. In 2014, Russia annexed Crimea. Today, the conflict in eastern Ukraine still smolders. Ongoing wars in the Middle East have created large quantities of refugees and increased the terrorist threat inside Europe as well.

The United States has undertaken perhaps the most striking shift in global geopolitics since 2013. The changing U.S. attitudes signaled by the previous presidential administration have been further confirmed by the current occupants of the White House: The United States is no longer willing to cover the costs of its allies' defense, and its allies are feeling pressure to increase their military spending. The trend has been felt strongly in Europe as the United States has more deeply focused its gaze on Asia, another development that was telegraphed by the previous administration. With the United States increasingly willing to confront its allies, Germany can no longer sustain its relative complacency on defense, which has become particularly marked since the end of the Cold War. The U.S. attitude toward trade has transformed as well. With the new administration seemingly committed to reshoring production and inhibiting imports, Germany now sees its top export market outside Europe, which accounts for 9 percent of its total, at risk.

Military Expenditure as a Percentage of GDP

The unfolding process of Brexit will also demand the attention of Germany's next leader. When the divorce is complete, the European Union will lose 16 percent of its economic clout overnight, and new trade barriers will be erected between Germany and its third-largest market, which accounts for 7 percent of its exports. Moreover, the European Union will also be losing one of its two truly global military powers (the other being France), placing further pressure on the remaining countries to increase defense spending and cooperation. The United Kingdom's commitment to Europe's defense will remain strong, and its continued membership in NATO provides a strong guarantee of that. But the island nation's reclamation of its sovereignty creates a new dividing line running through the English Channel and opens up the possibility that the military interests of the United Kingdom and the European Union will diverge in the future. Germany's military planners will have to take this into account.

On its western flank, Germany is faced with a newly confident France. During the last decade, economic crises and slow growth saddled France and its kindred spirits along the Mediterranean with the reputation as the bloc's problem states. But the global economic outlook has been improving, and France now has an energetic young leader looking to use forthcoming negotiations on the European Union's future shape to achieve a result that will satisfy his country's imperatives - France has long coveted a freer-spending model in which substantial funds are pooled and shared among the bloc's members. This is mostly good news for Germany, but it also generates possible problems. A more confident France will lift the whole union, adding vitality and helping boost Europe's normative power, but Germany and France also do not agree in their visions of the perfect European Union, meaning they are liable to clash.

Germany is watching developments in EU members Poland and Hungary, and just across the EU border in Turkey, where illiberalism is on the rise. With a long history of being carved up and occupied by its peers, Poland has a primordial fear of its neighbors. This means Russia's actions in Ukraine in 2014, coupled with perceptions of German imperialism in Greece in 2015, have combined to bring to power a Polish government that is increasingly illiberal and antagonistic toward the governments in Berlin, Brussels and Moscow. For its part, Hungary shares Polish concerns of EU imperialism, and in any case is seeking a balance between Germany and Russia. Turkey, meanwhile, faces its own threats: With a war zone across its southern border and as the normative European influence has waned, Turkey has become an autocracy prone to anti-European outbursts. For Germany, these countries each present different problems. Because Poland and Hungary are EU members, their illiberalism plays into decisions that directly affect German citizens; the more EU countries follow their lead, the larger the problem becomes. The importance of Turkey is related in part to its role as gatekeeper stopping migrants from flooding into Europe, and also to its large and growing influence.

Farther east, Russia represents a different kind of challenge. Its own focus is shifting east - not only in the trade sphere but also soon with its energy pipelines - where China is providing economic opportunities and more political alignment as Russia moves further away from its disastrous 1990s experiment with democracy. But despite its changing priorities, Russia, uncomfortable with a united Europe, still poses a threat with its efforts to disrupt European unity wherever possible, actions that work directly against German imperatives. While the current balance of power means that Russia is unlikely to test NATO or EU commitments to countries on its periphery like Estonia or Romania with a military intervention, it will continue to create substantial wariness in Europe over the next four years.

Finally, there's China. Now well-entrenched as the world's second largest economy, China is in the process of extending its economic influence west across Eurasia toward Europe. China is still distant enough that it does not touch Germany's core imperatives, but if it's able to escape its looming debt crisis, China will occupy a greater portion of Germany's vision over the coming years. Already Germany and France have been making moves to inhibit Chinese investment in strategic sectors in the European Union, while member states that have received Chinese investment, notably Greece, have proved willing to vote in China's favor at the EU level.

Germany's Strategies, Old and New

The next German leader will step into this shifting world. To somewhat alleviate the challenge in some of these spheres, the existing strategic framework may not need adjustment. In dealing with Poland, Hungary, Turkey and Russia, for example, the European Union's current carrot-and-stick strategy may be sufficient.

In response to Russia's actions in Ukraine, Merkel has wielded a stick in the shape of EU sanctions, with their potential removal linked to specific steps that Russia must take to de-escalate the conflict. At the same time, Berlin has made sure that cooperation with Russia in other areas, most notably energy, is not disrupted. At the milder end of the scale, Poland and Hungary are still largely being offered carrots - the European Union's two most rebellious members are, along with Greece, among the top three recipients of net EU spending. But a stick is also being brandished. Brussels has threatened to sanction both, and the confrontation is gradually escalating. In this respect Germany and the European Union must be cautious, since perceptions of overbearing behavior were partly what drove Poland and Hungary away in the first place. In fact, relations are also liable to deteriorate further in the next few years either way: When the United Kingdom leaves in 2019, the bloc will lose one of its largest net contributors, meaning that there will be less money available, and the largest net recipients can expect to receive a pay cut. Germany's Turkey strategy will continue to fall somewhere along this carrot-and-stick scale. Until now, Germany and the European Union have tried to keep Turkey on board - with the migrant deal for example - largely with financial inducements and promises of consideration for future EU membership, though that prospect has become increasingly fanciful of late. If the relationship with Turkey continues to deteriorate, Germany and the European Union would have no choice but to break out the stick, which could put the migration deal in jeopardy.

That's the existing playbook, but other shifting circumstances will demand new strategies. First to come will be negotiations over EU reform, which France would like to begin immediately. That effort will represent a huge opportunity for Germany to satisfy its imperatives by establishing a new working relationship that could redefine the European project and set it on course for a sustainable future. Unfortunately for this vision, Germany will be greatly constrained in its ability to compromise on issues that are dearest to French hearts, including increased spending and risk pooling across either the whole European Union or even just the eurozone. Germany is generally reluctant to spend more money - it sees its aging population as a future burden that will suck up today's funds - and it has an even greater aversion to a pooling of economic risks, as it judges the reckless behavior of its Mediterranean peers, particularly Italy, as a threat to its national wealth. While there will be progress toward more political and economic integration as Germany strives to strengthen the EU model and restart the normative engine, limits on both sides will mean the ultimate achievements will be far less comprehensive than the ambitious proposals that have thus far been discussed.

An area where there could be more substantial advances in European integration is in defense spending and coordination. The onus of responding to security threats, especially as the United States takes a less proactive approach and the distance widens between the British military and the European Union, will fall on the remaining NATO and EU members. Germany, still greatly affected by its own dark history and wary of being seen as acting alone - particularly in military matters - is much likelier to drive a blocwide push, perhaps tied into a more robust Defense Union and the creation of an EU army. The United Kingdom's reluctance in that area had been a key obstacle to progress, and it soon will be removed. Seven decades after World War II's end, we may be entering a period in which Germany begins to come to terms with having an active military role.

Finally, Germany will seek to preserve the U.S. and British markets, which account for 16 percent of its total exports. The German government will press to preserve its trade with the United Kingdom during the course of Brexit negotiations. Its strategy for dealing with U.S. demands will include enlisting the help of other countries to safeguard the multilateral checks and balances that inhibit protectionist behavior. Meanwhile, Germany will seek new markets to replace any trade erosion it may suffer. China and other fast-growing Asian countries represent an opportunity that Germany will seek to tap into to protect its economic model. Those new economic links may boost its relationships with those countries in other aspects, too.

Germany's new government is coming to power at a crucial point in global geopolitics. Many truths that have been taken for granted in the postwar era have been thrown into doubt. While the past 70 years have presented serious challenges for Germany, the status quo has allowed it to build a great fortune with an outward-facing trade model. As many of those foundations erode, Germany is about to embark on a new journey within a transforming global system. It's unclear whether this will be to Germany's benefit or to its detriment. But the one certainty is that the world is changing, and Germany must adapt.

"The World That Awaits the Next German Leader" is republished with permission of Stratfor.

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