Thursday, 9 February 2012


From the eruption of the southern and Eastern European public debt crisis in 2009 until the present, there have been very clear signs that Germany is planning to remain continental Europe's hegemonic economic power that would be able to compete globally with other Great Powers - US, China, Japan, UK, and Russia, as well as the newly-emerging economic powers India and Brazil - in the 21st century.

There is nothing sinister about the desire of the German political and socioeconomic elites to want their country to secure a place as a significant world power in the 21st century, but the method that German government and banks have been using to achieve the goal is indeed very sinister and has the distasteful aroma of imperialism. With the unification of Germany and the fall of Communism that created a huge power gap in Eastern Europe, scholars inside and outside of Germany asked whether the country would pursue a quest for hegemony.

Largely because scholars, journalists and politicians were in Cold War thinking (dichotomous) mode, the idea was readily dismissed because: 1. of the reality that Germany went to war twice and destroyed; 2. the US is the world's sole military and economic superpower that could easily contain Germany that would also have to heed the geopolitical roles of Russia, France and UK; and 3. the new unified Germany was only interested in economic power within the rules of global capitalism, rather than pursuing national capitalism as a tool of political and military power.

In short, a unified Germany was a triumph for the capitalist West and defeat for the vanquished East. After all, a strong central Europe would keep the balance of power between Russia to the east and UK and France to the West. As a NATO and EU member, Germany would serve US geopolitical goals.

To some degree, Germany served the US strategic, political, and economic goals, but that was until it became sufficiently powerful to impose its will on the eurzone during the global recession of 2008-present followed by the public debt crisis. Germany's ascendancy corresponded with the relative economic decline of the US and China's rise, compelling Germany to look down the 21st century and secure its sources for raw materials and markets, exactly as it was doing between 1870 and 1914 during the Age of Imperialism.

Contracting global economic conditions, combined with the public debt crisis in southern and Eastern Europe, afforded Germany the opportunity to use its dominant role in the eurozone as a springboard for European preeminent economic influence, including imposing trade, investment, monetary and fiscal policies on the rest of the eurozone members. If Germany manages to impose its patron-client model of integration in the eurozone, then it will also manage to secure a place as one of the world's prominent Great Power.

Until the public debt crisis of 2009-present erupted across southern and Eastern Europe, the European Union integration model was based on inter-dependency relationship - elevating the weaker members closer to the stronger ones through subsidies, so that the socioeconomic gap between northwest Europe and the rest of the EU members is not as wide as it is between US and Mexico. Closing the gap somewhat in labor and asset values was at the heart of the inter-dependent integration model that set it apart from the patron-client model that the US has been relying on to integrate Latin America.

Deviating from the historic integration model was easy because monetary policy rested in the hands of the strong core countries. Instead of pursuing a liberal monetary policy and weakening the euro to help the struggling debtor nations amid the global recession, Germany opted for a tight monetary policy that has in essence converted the eurozone integration model into an imperial system based on client-patron relationship, a model similar to what the US has been pursuing in the past one hundred years in Latin America. Employing the patron-client integration model, Germany can coast into eurozone hegemony and secure its place as a Great Power in the 21st century by absorbing capital from the eurozone periphery (southern and Eastern Europe) to keep the core (northwest Europe) strong.Where is the precedent for German desire to use integration as a tool of imperialism?

Before the unification of Germany in 1870, the Prussian determination to create a customs union - Zollverein - and unify the German-speaking territories led to the creation of the German nation that was founded as a result of the war with France (1870-1871). The German nation predicated its existence on Otto von Bismark's policy of maintaining European hegemony by industrializing, neutralizing Great Britain and Russia, Germany's big enemies, and pursing a colonialist/imperialist foreign policy during the race for raw materials and markets.

Like Japan at roughly the same time, Germany achieved Great Power status very quickly, but its boundless ambition to remain a global power combined with high risk foreign policy resulted in diplomatic conflicts and indirect military confrontations in Africa, especially the Boer War that signaled how imperialist competition could sink the Great Powers into a major war.

Despite all signs that the risks for pursuing imperialism would entail a major conflict, mainly between Great Britain and Germany, the resolve on the part of the military, political, and business establishment was unshaken. For Germany under conservative Junker (Prussian aristocrats) leadership, the goal was to continue prospering and strengthening the national economy at any cost, including war for which Germany had been preparing ten years before WWI erupted.

A decade or so before WWI, German political and socioeconomic elites embraced the vision of 'World Power or Decline' doctrine, that is, becoming a super power that competes globally or facing mediocrity among European nations competing amid the second industrial revolution. This vision entailed that Germany had to accept certain risks in order to become a great power, including the risk of becoming a more aggressive imperialist nation in order to build a strong economy and defense network.

In the 1960s, German historian Fritz Fischer revolutionized interpretations regarding the causes of the Great War when he published Griff nach der Weltmacht: Die Kriegzielpolitik des kaiserlichen Deutschland 1914–1918, a book followed by others with a similar thesis regarding the expansionist schemes of the German Empire and the conviction that the alternative to becoming a Great Power, able to compete in the 20th century, was decline. This vision of greatness - in essence hegemony over continental Europe - entertained even before Prussia unified the Germanic-speaking states in 1870 remains deeply ingrained in the German culture and it is the pursuit of the 21st century under the guise of globalization.

In 2012, German political and economic ambitions are to use the Eurozone as the basis to achieve regional hegemony and ensure greatness on the global stage, so that Germany would be able to compete effectively with the other Great Powers. Whether the German goal of altering the integration model on which the EU was founded works or not is not important. In either case, German corporations gain both in the short term as well as longer term. With a lower euro value owing to the public debt crisis of the EU periphery, German exporters have been gaining ground in the non-euro areas as the balance of payments and GDP growth stats indicate. 

There is a recent report that Germany has gained an estimated 45 billion euros in 2010 and 2011 as a result of the sovereign debt crisis in southern Europe, while one of the most corrupt banks in the world, Deutsche Bank, has made huge profits trading bonds. In a previous posting about Deutsche Bank, I noted that the fact that the voice of this bank matters more than does the voice of the German Finance Ministry is scary, or at least it should scare Germans and Europeans alike, just as the voice of German bankers was of paramount significant in the pre-WWI era.

Should the integrity of the European Union and the euro as a reserve currency be based on the narrow interests of a few banks like Deutsche Bank, and if so, should German and EU citizens not have the right to full disclosure about the extensive operations of this bank, on which the US government has imposed more than one billion dollars in fines? Is capitalism to be saved or sacrificed so that Deutsche Bank and a few other financial institutions and corporations are saved because they have become one and the same as contemporary international capitalism fully backed by the German state?

In the 19th and early 20th century, there were very important German banks and industrial companies supporting and advocating imperialist policies so risky that they led to the Great War, exactly as Fritz Fischer and many others have argued. In short, that Deutsche Bank among other corporations like Siemens, MANN, etc. are backing the patron-client integration model should not be surprising for it is not unprecedented. After all, the same holds true for finance and corporate capital standing behind policies that US, UK, and other countries where governments have used trillions of taxpayer money to strengthen these institutions.

Therefore, this is a much larger issue about how capital determines the EU monetary union's future, and Germany's role in the global economic balance of power. Moreover, there is the question of the degree that such policies have already weakened parliamentary democracy in the periphery, and the degree to which such policies may be placing democracy in jeopardy as the periphery becomes poorer so that core countries like Germany may become richer by exploiting the former.

It is true that the Maastricht Treaty’s (1992) imposed rigid rules on members to keep annual fiscal deficits below 3%. However, the EU never had in place effective mechanisms to deal with countries that experienced default-like conditions in case of global recession, any more than it had mechanisms for countries that simply lied about exceeding the treaty’s terms. This was deliberate because there was a liberal credit regime intended to stimulate growth. However, the creditor nations led by Germany could at any time demand strict adherence to Maastricht and use the same treaty as a mechanism to converter the inter-dependent integration model into a patron-client one.

It is now public knowledge that EU officials were allowing the weaker countries in the union to spend at much higher levels than Maastricht permitted and to illegally strike swaps deals with Goldman Sachs. Banks and multinational corporations like Siemens, MANN, Deutsche Bank, Hypo Real Estate, etc., in the stronger countries de-capitalize the weaker EU members through direct and portfolio investment; a situation made worse by the much higher level of official corruption in EU’s debtor countries concentrated in the south and east.

In essence this means that the German-dominated EU is creating a two-tiered economy with hegemonic economies on the northwest tier and the weaker and “dependent” economies in the south and east. Especially amid this crisis, Germany and strong creditor countries demand from weaker EU members lower taxes for direct foreign investment, fewer restrictions on capital movement, lower wages, social security,and social benefits, liberalization of all vital sectors of the economy, including privatization of public enterprises so that foreign investment penetrates and eventually dominates such sectors.

In return for austerity concessions that debtor countries must make, they receive loans with interest rates higher than most home mortgages in order to pay interest on past debt, not to develop the economy in order to generate job growth and new wealth. Thus, the creditors saddle the debtor countries with cumulative foreign debt that will keep them perpetually dependent in every respect and much weaker economically within the eurozone; in essence serving as quasi-colonies for the core countries led by Germany.

In the campaign to impose austerity on the weaker members, creditor countries in collaboration with the IMF and European Central Bank are imposing monetary, fiscal, trade, investment, and labor policies on the periphery as part of an effort to make them 'more competitive' by reducing their national labor and asset values.  EU member and associate debtor members under some formal or informal austerity program will be reduced to “Third World” status and they will suffer cyclical debt crises like Latin America and Africa, to the benefit of core countries, especially Germany that is hegemonic in the eurozone.

It is obvious that Germany under Angela Merkel has seized the opportunity presented by the public debt crisis to prevail in imposing its political will on the rest of the eurozone, just as it is obvious that it has done so with the help of the IMF, World Bank that is not helping any debtor country with development loans unless it first implements austerity, and with the help of the large banks. This prescription appears to be popular inside Germany, according to public opinion polls, partly because the German public believes it is paying to bail out debtor countries, when in reality it is paying interest payments to the large banks, including German banks.

The so-called "New World Order" created after the fall of Communism has some similarities with the pre-1914 world, but it is hardly the same, no matter how much some scholars try to stress the similarities. And just as in the pre-1914 world order, it was not Germany alone, but imperialism that caused smaller and large wars along with the systematic exploitation of the periphery by core countries. In short, Germany is only taking advantage of an international order and political economy, and it is not doing anything that the US is not doing without using military intervention.

Unlike the pre-WWI era when Germany was intent on the road to world power or decline basing its strength mostly on national corporations and banks, in the early 21st century capital is much more international. Deutsche Bank, Siemens and other German multinational corporations' shares are traded around the world, but the strong German state stands behind these corporations, working to make certain that they remain strong so they can in turn keep the core strong.

Germany has been using globalization as well as the international organizations like the IMF as tools of hegemony, tools that did not exist before 1914, but it has failed to appreciate that just as the Allies imposed ruinous financial conditions that contributed to the Great Depression and Hitler's rise to power, Germany is now doing the exact same thing with periphery countries. Is the risk worth taking when Germany must remain competitive with China, US, Japan, and other Great Powers?

If you are a German politician and businessman the answer is that all risks are worth taking; the exact same answer that German politicians and businessmen gave in their pursuit to global dominance before 1914. But what if you are a German middle class professional or factory worker who assumed that your taxes is going to bail out the periphery? About two thirds of the Germans actually support the current policies that have transformed the eurozone into a German-dominated zone. Just as in the pre-1914 era when a segment of the German middle class and workers saw imperialism as a growth stimulant, similarly today's German society has no qualms about neo-imperialism under the guise of austerity and neoliberalism imposed on the rest of Europe.

1 comment:

Andy Perez said...

Smells like unjustified fear mongering. Is there anything wrong with a nation-state wanting to advance it's economy and by extension it's geo-political stance in the world? Could we dare to hope that underdeveloped countries employ the same cultural traits such as efficiency, productivity, low corruption and attention to quality as Germany? Even the so-called developed countries such as the United States, France, UK, Singapore, etc. have much to learn from the post-War, post-Soviet German economic miracle.

Yes, it is a miracle due to the fact that despite having lost 2 wars and been destroyed, despite having to take in and pay for an East Germany which had been sickened and corrupted by 45 years of communist rule, despite having to pay for half of all European Union funds, and despite supporting the Euro and having to bail out the piGs (Portugal, Italy, Greece, Spain - emphasis on G) for inefficient, reckless, and corrupt domestic fiscal policies - despite these challenges, Germany has remained an economic powerhouse as the largest exporter in the world (until China overtook in 2011), with more humanistic labour policies and less corruption than most of the "developed" countries.

During the past 4 year recession, Germany has maintained an unemployment rate of around 5%. By German law there must be a labour representative on the executive committee/board of every company. Women have full paid maternity leave for a total of 14 weeks. Sure the nominal tax rate is 45%, but effectively it is the same as the U.S. when accounting for health insurance and other benefits. Germany ranks 14th least corrupt country in Transparency International's Corruption Perception Index, the U.S. is ranked 24th which is even behind Chile at 22nd. More importantly a beer at a sports event costs around $3 (compare $10 in U.S.), a speeding ticket (when there is one) averages $30 (compared to $200 in U.S.), and a ski lift ticket costs half that of any in the U.S.

So the question to ask really is: how can we be more like Germany? How do we apply the German economic model to both the developing and developed world? It was the unregulated and unhindered American economic philosophy which created this last semi-depression. CDOs CDAs, bailouts, too big to fail, moral hazards, animal spirits, etc. Was it the geniuses at Merrill-Lynch who repackaged Greek debt into a series of derivatives back in 2000 to make it look good enough to even enter the Eurozone? Yes, that would be called "lipstick on a pig", or dousing perfume on excrement, or choose your clever American euphemism. But I digress...

Should we fear and attempt to prevent "Germany's Quest For Hegemony"? If that "hegemony" leads to economic prosperity, less corruption, more efficient governance, and a stronger middle class, the opposite is true - it should be embraced and encouraged.