The general elections to the German parliament are nearing, and the polls suggest no clear coalition and only a small lead for the co-ruling Conservatives under Chancellor Angela Merkel who will resign. Germany is the strongest EU economy, and hence, has a large impact on economic policies in Europe. It has also been one of the countries that came out of the Euro crisis stronger with its inner-EU influence enhanced. The main reason for that was that Germany’s foreign-export dominated economy benefited from China’s need for German imports (Kundnani, 2018). Berlin’s export-oriented economy has led also to a geo-economically directed foreign policy, which has aimed at imposing German interests on other states (ibid.). This article will first explain geo-economics as a foreign policy tool, and then further analyze Germany’s geo-economic power as well as how major German parties suggest geo-economic policies in their election programs.
Geo-economics: a powerful tool in foreign policy
In a nutshell, geo-economics means “the use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results” (Blackwill & Harris, 2016). Instruments of this kind include: trade policy which regulates the access to domestic markets and asymmetries in economic relationships with other states, investment policy and economic assistance as well as sanctions, national policies governing energy and commodities, and migration to demand concessions from another state (Blackwill & Harris, 2016; Scholvin & Wigell, 2018).
The EU member states’ and the US governments have the capacity to influence their respective markets to force or to nudge other states to adapt to the former’s wishes (Kundnani, 2018). An example of that would be the so-called smart sanctions, a popular approach for western administrations developed since 9/11 and targeted at non-state as well as state actors. The decisive difference setting these sanctions apart from traditional trade sanctions is that they try to leverage the vital role of private sector actors, especially banks and other financial institutions, at the heart of the international financial system (Zarate, 2013). Instead of barring private sector actors from interacting with sanctioned non-state or state players, smart sanctions aim at imposing costs on the latter and alter their calculus of interests.
Another example would be large trade agreements, such as the European Economic Free Trade Area, or the for now abandoned US-led projects of the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). The former requires participatory non-EU states to adhere to EU legislation; the latter – it was argued – would have helped to achieve strategic objectives beyond economics. Whereas TTIP was presented as an instrument to set rules and trade standards for the 21st century, and consequently, strengthen the liberal international order (Pritzker, 2016); TPP would bolster links between the US and Asian countries and contribute to a geo-economic containment of China (Tellis, 2015).
Germany’s geo-economic power inside the EU
Inside the EU, Berlin has demonstrated its geo-economic power most clearly. Germany presented itself willing to utilize its economic power to impose its interests on other Eurozone states. Since the creation of the Euro Germany has accumulated a lot of influence in economic issues in the EU. Berlin was also in charge when the Maastricht criteria and the Stability and Growth Pact were established, which set strict limits on governments to run fiscal deficits and amass debt (Kundnani, 2018). During the Euro crisis following the 2007-08 financial crisis, Berlin’s strategic goal was to prevent a rupture of the European single currency, and a break-up of the EU as a potential consequence (ibid.). Not only is European integration regarded to be beneficial to its national interest as essential to the country’s security and rehabilitation, Germany’s drive behind the creation of the Euro should be seen as a geo-economic strategy aiming to quell western fears of its increasing strength (Blackwill & Harris, 2016). Just as Blackwill and Harris pointed out (2016) that “states can and often do design geo-economic policies that simultaneously advance multiple interests – geopolitical, economic, and otherwise,” Berlin sought to avoid establishing a ‘transfer union’ where less thrifty states would burden their debts on more fiscally responsible ones. This explains Germany’s opposition to the mutualization of European debts in the form of Eurobonds and the insistence on formulating policies supporting price stability (Kundnani, 2018). Price stability is of major importance for any well-functioning economy to create an environment where producers and investors have planning security, particularly in Germany’s export-oriented economy.
Germany’s solution to the Euro crisis – in an attempt to accommodate economic and strategic objectives – was to offer loans, or more dramatically called bailouts, to crisis-ridden countries, while asking for fiscal consolidation and structural reform as conditions (Kundnani, 2018). To compel Eurozone members like Italy and Spain to implement structural reforms deemed to increase the bloc’s competitiveness, the German government used market forces such as fluctuations in interest rates (Woodruff, 2016). Reportedly, German officials even asked China no to purchase debt of afflicted Eurozone states so as to keep up reform pressures (Otero-Iglesias, 2014). Other measures promoted by Berlin, like the European Semester, aimed at increasing the coordination and monitoring of fiscal deficits, targeted debt and deficits as well as institute sanctions against non-compliant governments (Kundnani, 2018). Hereby, Germany has sought to leverage its economic power as the Eurozone’s largest creditor country to impose its preferences on other states in the bloc and to institutionalize its own interests.
The German insistence on saving the Euro dictating, in particular, austerity measures on debtor states revealed one weakness of the single currency. It has deprived Eurozone members from devaluing their national currencies, one of the few options they have at their disposal to alleviate pressures (including pressures to reform). Thus, adjustment measures were not only asymmetric between the creditor and debtor countries but also based completely on internal devaluation, such as wage and other cost cuts (Kundnani, 2018).
Germany’s geo-economic power outside the EU
After the reunification of the Federal Republic of Germany and the German Democratic Republic, Germany had seemingly turned into a ‘civilian power’ seeking to prioritize international cooperation in pursuit of global objectives by using non-military (in particular, economic) means and developing supranational structures (Maull, 1991). However, in the early 2000s, Berlin’s commitment to multilateralism and its willingness to consistently side with allies appeared to have diminished as the German economy had become more dependent on exports (Kundnani, 2018). Most prominently so, when former Chancellor Gerhard Schröder refused to participate in the Iraq invasion in 2003 which encumbered German-US relations.
The Ukraine crisis presented a turning point in German foreign policy. Until then it was characterized by “economic assertiveness” inside the EU and “military abstinence” outside the EU (Kundnani, 2018). Chancellor Angela Merkel overruled large sections of the German business community and enforced hard sanctions against Russia subordinating the extensive economic interests in Russia to the strategic interest of European security. Although, Berlin’s commitment to the sanctions regime has been holding, other attempts to use military means to contain Moscow were blocked (ibid.). For instance, ahead of the NATO summit in late 2014, Germany assailed plans to install a permanent military presence in central and eastern Europe. Or, when the Obama administration reportedly pondered to provide direct military aid to Ukraine, Chancellor Merkel promptly and publicly opposed this (Gordon, Smale & Erlanger, 2015). Cries from the German business to cancel the sanctions regime against Russia have grown louder and louder, event the European business association Eurochambres pleaded for a gradual reduction (Handelsblatt, 2019). Earlier this year, a public consultation of the Bundestag committee of business and energy showed the continuing rift between supporters and opponents of sanctions (Bundestag,2021).
Nevertheless, the German government’s position towards the Nord Stream 2 pipeline suggests a return to the primacy of economic strategy. By insisting that the gas pipeline is merely an economic project, the Merkel administration tried to preempt fears of several EU member states and the US over negative consequences for Europe despite the clear geopolitical character of any pipeline project. Pipelines require major investments and interlock countries for many years and decades in a mutually dependent relationship. Even though an agreement has been reached between Washington and Berlin in regard to Nord Stream 2, a final settlement looks different. The deal contains several stipulations for Germany to fulfill in support of supply security to Europe and of Ukraine, however, no mention was made on penal measures if Germany would not conform to its pledges (Williams & Olearchyk, 2021). In contrast, the enthusiastic German support for sanctions on Belarus may be explained by its low economic involvement in the country. In 2019, the bilateral trade volume was only about €2 billion with a mere 300 German companies active in Belarus (Federal Foreign Office, 2020). Germany ranked also only fourth as trading partner behind Russia, Ukraine and China (ibid.).
Major German parties on geo-economic issues
The four parties leading the polls in Germany a few weeks before the parliamentary elections (and which have the highest likelihood to enter a coalition government – unlike the Alternative für Deutschland (Alternative for Germany) which has preemptively excluded by other parties) are the Christlich-Demokratische Union (Christian-Democratic Union)/Christlich-Soziale Union (Christian-Social Union – only in Bavaria, Conservatives), the Sozialdemokratische Partei Deutschlands (Social democrats), Bündnis 90/Die Grüne (Greens), and the Freie Demokratische Partei (Liberals). The former two parties are in a governing coalition under Chancellor Merkel; the latter two in the opposition (together with the Alternative für Deutschland and Die Linke, the successor party of the German Democratic Republic’s Socialist Unity Party).
It may not surprise that the governing conservatives do not suggest any big changes to Germany’s geo-economic policies. They support the monetary rules of the EU, the sanctioning of states non-compliant with western policy preferences, and they decline a fiscal union in the EU (CDU/CSU, 2021). The social democrats, however, plead for a banking and fiscal union because “a crisis-proof EU must be able to act and has to develop into a true fiscal, economic and social union” (SPD, 2021). Furthermore, the party program supports the US initiative of introducing a global minimal income tax on corporations (ibid.). Such a tax is clearly a geo-economic instrument which aims at removing the competitive advantage of low-tax countries and increase tax income for burgeoning state budgets in western states. As social democrats also call for the introduction of more political conditions in international trade agreements, so do the Greens. Not only should the protection of labor and sustainable trade be increased, the Greens even suggest the further development of anti-dumping and anti-subvention instruments from third countries which unfairly undermine western markets (Bündnis 90/Die Grünen, 2021). Their international trade policy is obviously targeted against China suggesting, for instance, the introduction of export taxes (in other words, tariffs) in countries of the ‘global South’ to reduce and protect the natural resources there (ibid.). Just as the social democrats, they support a fiscal union and the increase of taxes to finance large, high-risk infrastructural programs like the European Green Deal (SPD, 2021; Bündnis 90/Die Grünen, 2021). However, the geopolitical component of this project is not taken into account by either party, except for the usual slogans of solidarity. The Liberals, similar to the Conservatives, support the monetary rules of the EU, the sanctioning of states and decline the fiscal union (FDP, 2021). More than that, they demand that the state should retract completely from the domestic banking sector (ibid.). Such a call would weaken the geo-economic power of Germany; on the other hand, it would make the buying up of debts by the central bank impossible and solidify the banking sector.
Conclusion
Altogether, a clear political divide separates the parties of the center and center-right from the other. How such ideological chasms could be overcome in a very possibly mixed coalition government containing at least two or more of the listed parties remains to be seen. Much in the end will depend on US foreign policy in these areas, since other countries in the EU will hardly be able to convince to change their winning policies of the past.
What the next German government will look like, is at the moment hard to predict, however, it is unlikely that any major policy changes away from a solid geo-economically driven foreign policy will occur. Too much has Berlin profited from the beneficial state of global economics in the last decades, and would like to return to business as usual as soon as possible, especially because of Germany’s export dependency. Hence, parties suggesting tax increases on companies will weaken the German economy, and consequently, the national budget.
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By Andreas Rösl : The European Institute for International Law and International Relations.
