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'Euro-pragmatic' Berlin flexes muscles as EU debt crisis drags on

Once considered the EU's staunchest supporter, Germany is growing increasingly critical of its indebted neighbors. Buoyed by a strong economy, Berlin is shedding its timid stance and defending its interests.

Angela Merkel, EU and German flags

Germany's support for the EU is no longer unconditional

During the Cold War, Germany felt strongly that its national interests were synonymous with those of a united Europe. Being part of Europe meant Berlin could exercise its sovereignty in the name of peace and reconciliation. But since reunification, political elites have become more willing to defend German interests, even if they conflict with broader EU goals.

"The opinion of the elites regarding Europe has completely changed," Ulrike Guerot, with the Council on Foreign Relations in Berlin, told Deutsche Welle.

That change has to do with European monetary union and the introduction of a shared currency, the euro. It was a crowning achievement of the once unimaginable reconciliation between diverse nations into a functioning European bloc.

euro coins

Many see the euro a the EU's crowning glory

But recently, the global financial crisis has exposed divisions between Europe's increasingly jealous nation-states. And hopes for a deepening democratic union from Brussels to Bucharest have run up on the rocks of economic hardship.

The Greek situation

Some countries, such as Greece and Spain, are struggling with mountains of debt, while Germany is experiencing its most impressive growth since reunification.

Throughout the debt crisis, powerful Germany has been expected to foot a large portion of the bill. But Berlin has begun taking pains to defend German national interests. And increasingly, Angela Merkel's government is saying in no uncertain terms that its help will only come with a price.

When Greece threatened to default on its debt in early 2010, all eyes looked to Germany - Europe's largest economy - for a solution. But Berlin worried that an EU intervention in Greece would set a dangerous precedent. If weaker members of the eurozone knew they would ultimately be bailed out, what incentive would they have to reform their economies?

riots Greece

Fiscal austerity led to violent protests in Greece

"Germany didn't want what's called a moral hazard, (where) some countries in the system live off the cost of others. You get into a situation where a few misbehave because they think they will always be saved," Guerot said.

This so-called moral hazard is the product of deep economic inequalities that still divide Europe.

"In Germany you have a country which has a heavily industrial, export-based economy with tight fiscal discipline," Charles Kupchan, with the Council on Foreign Relations in Washington D.C., told Deutsche Welle. "In other countries, you have very different kinds of economic foundations as well as a lax approach to budgets and deficits."

Berlin in a tight spot

While pressure from throughout Europe mounted on Berlin to throw its weight behind a bailout of Greece, many Germans felt like they were being asked to pay for an economic crisis they did not create. The Merkel government faced pressure both from outside and within. European leaders called for action, while German citizens were demanding restraint.

"There was a strong public opinion, driven by the tabloid press, which said that the Greeks are partying while the hardworking Germans are bailing them out," Guerot said.

Meanwhile, the euro's value plummeted as global markets punished the entire eurozone for Greece's ailing economy. Berlin ultimately helped bail out Athens - but only after forcing through structural reforms to the Greek economy.

"The Germans waited until the Greeks were forced to introduce structural reforms that would limit their trade and budget deficits as well as their debt," said Hans Stark of the French Institute for International Relations in Paris.

"If the Germans had helped earlier, then nothing would have changed about Greece's economic productivity. The Greeks would have been in the same situation six months or a year later," Stark told Deutsche Welle.

'We've lost the narrative'

Meanwhile, Berlin faced harsh criticism in Brussels for not helping to stem the debt crisis earlier. And these awkward public disagreements have raised concern about the German commitment to further European integration.

Helmut Kohl, Francois Mitterrand

The driving forces behind the EU are changing as history moves on

Part of the problem is a growing awareness that the purpose of European integration - once upon a time considered the best means to insure peace in the region - is losing ground to other, newer issues.

"It's not so easy to just say, as [Chancellor Helmut] Kohl did in 1992, that the Euro makes peace irreversible in Europe," Guerot said. "Try talking to my son about peace. For everyone post 1989, the issues are 9/11, China or globalization. But peace? We've lost the narrative."

This "narrative" was originally built around a tight-knit community of Western European states. But as the EU has expanded to encompass nearly the entire continent, it has proven difficult for 27 countries to forge a unified sense of identity and purpose.

"Europe today is treading water," the Council on Foreign Relations' Kupchan said. "There is a widespread perception - often unstated - that the foundations of the [European] Union are shifting. And that the traditional core tenets of the construction of Europe are now being called into question."

Euro-pragmatism

Meanwhile, Germany is currently witnessing its most impressive economic growth since reunification. As a result, Guerot sees a growing temptation in Berlin to go it alone and forge strong bilateral relationships, instead of waiting for Europe to catch up.

"The old German republic was the most steadfast supporter of European integration because Germany didn't have any other options," she said. "What's changed is that people now think we have other options. (They think) Europe is too problematic and expensive and we can better deal with the Russians and Chinese alone."

This line of thought may be tempting at the moment, Guerot says. But she points out that in the long-run, such a policy would be disastrous.

"We're in the middle of Europe," she said. "Simply in terms of geography, if we spoil our relationships with our neighbors, things won't go well for us politically and economically."

According to Stark, Berlin still views the EU as a source of stability, and the common market continues to enjoy broad approval. However, support for political integration with a view toward federation may have reached its limits.

"In this regard, Mrs. Merkel is very pragmatic and sober," Stark said. "She is working for a Europe that a broad majority supports both in Germany (...) and other countries. Germany is neither euro-skeptic nor euro-enthusiastic, but instead euro-pragmatic."

Germany's price tag

So although Germany remains anchored in Europe, its support is now tempered by a national pragmatism. Berlin has helped bail out Greece and now Ireland, but it expects to get something in return. Increasingly, Berlin wants the rest of Europe to adopt an economic model similar to its own.

protests in Ireland

Ireland, too, enacted spending cuts in exchange for aid

"Germany has quite firm views about how to run an economy," Kupchan said. "Those views grow out of German history and the inflation of the interwar period. As a consequence, Germans want to see the discipline that's generally exercised by the German government replicated by its EU partners."

Indeed, the EU established a permanent bailout fund only after agreeing to a number of German stipulations. Countries can tap into the fund only when it is indispensible to the euro. And if a country takes bailout money, it is obligated to introduce tough spending cuts. In short, there is no free lunch.

"Due to important historical traditions and responsibilities, the old German republic believed in Europe at any price," Guerot said, but that is now a thing of the past.

"Germany remains committed to Europe, but there will be a German price," she added. Just ask Greece and Ireland.

Author: Spencer Kimball
Editor: Jennifer Abramsohn

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