Wealth-Fueled Decline

There is no doubt that Germany is today stronger politically and economically than it was when Merkel became chancellor back in 2005. However, the very reasons Germany is stronger are the same reasons why her decline is assured within a stagnating Europe.

Germany’s power is the result of three massive surpluses: its trade surplus, the structural surplus of its federal government, and the inflows of other people’s money into the Frankfurt banks, as a result of the slow-burning, never-ending euro crisis.

While Germany is swimming in cash, courtesy of these three surpluses, this cash is mostly wasted. Instead of being pumped into the infrastructure of the future, public or private, it is either exported (e.g., invested abroad) or used to buy unproductive assets within Germany (e.g., Berlin apartments or Siemens shares).

Why can’t German companies, or the federal government, invest these rivers of money productively within Germany? Because — and here lies part of the cruel paradox — the reason these surpluses exist is that they are not invested! Put differently, under Mrs Merkel’s reign, Germany made a Faustian bargain: by restricting investments, it acquired surpluses from the rest of Europe, and the world, that it could then not invest without forfeiting its future capacity to extract more surpluses.

Looking deeper into their origin, the massive surpluses that empowered Germany under Mrs Merkel are the result of forcing German and, later, European taxpayers to bail out Frankfurt’s inane bankers on condition of engineering a humanitarian crisis in Europe’s periphery (Greece in particular) — a means by which Merkel’s government imposed unprecedented austerity upon both German and non-German workers (disproportionately, of course).

In short, low domestic investment, universal austerity, and turning proud European peoples against each other were the means by which successive Merkel governments transferred wealth and power to the German oligarchy. Alas, these means also led to a divided Germany that is now missing out on the next industrial revolution within a fragmenting European Union.

Three episodes offer insights into how Merkel exercised her power across Europe to build up, step by step, the cruel paradox that will be her legacy.

Episode 1: Pan-European Socialism for Germany’s Bankers

In 2008, as banks on Wall Street and in the City of London crumbled, Angela Merkel was still fostering her image as the tightfisted, financially prudent Iron Chancellor. Pointing a moralizing finger at the Anglosphere’s profligate bankers, she made headlines in a speech in Stuttgart where she suggested that America’s bankers should have consulted a Swabian housewife, who would have taught them a thing or two about managing their finances. Imagine her horror when, shortly afterwards, she received a barrage of anxious phone calls from her finance ministry, her central bank, and her own economic advisers, all of them conveying an unfathomable message: Chancellor, our banks are bust too! To keep the ATMs going, we need an injection of €406 billion of those Swabian housewives’ money — by yesterday!

It was the definition of political poison. As world capitalism was having its spasm, Merkel and Peer Steinbrück, her Social Democrat finance minister, were ushering in austerity for the German working class, advocating the standard, self-defeating mantra of belt-tightening in the middle of an almighty recession. How could she now appear in front of her own members of parliament — whom she had for years lectured on the virtues of penny-pinching when it came to hospitals, schools, infrastructure, social security, and the environment — to implore them to write such a colossal check to bankers who until seconds before had been swimming in rivers of cash? Necessity being the mother of enforced humbleness, Chancellor Merkel took a deep breath, entered the splendid Norman Foster–designed federal Bundestag, conveyed the bad news to her dumbfounded parliamentarians, and left with the requested check.

At least it’s done, she must have thought. Except that it wasn’t. A few months later another barrage of phone calls demanded a similar number of billions for the same banks. Why? The Greek government was about to go bust. If it did, the €102 billion it owed German banks would disappear and, soon after, the governments of Italy, Greece, and Ireland would probably default on around half a trillion euros worth of loans to German banks. Between them, the leaders of France and Germany had a stake of around €1 trillion in not allowing the Greek government to tell the truth; that is, to confess to its bankruptcy.

That’s when Angela Merkel’s team came into their own, finding a way to bail out Germany’s bankers a second time without telling the Bundestag that this was what they were doing: They would portray the second bailout of their banks as an act of solidarity with Europe’s grasshoppers, the people of Greece. And make other Europeans, even the much poorer Slovaks and Portuguese, pay for a loan that would go momentarily into the coffers of the Greek government before ending up with the German and the French bankers.

Unaware of the fact that they were actually paying for the mistakes of French and German bankers, the Slovaks and the Finns, like the Germans and the French, believed they were having to shoulder another country’s debts. Thus, in the name of solidarity with the insufferable Greeks, Mrs Merkel had planted the seeds of loathing between proud peoples.

Episode 2: Pan-European Austerity

When Lehman Brothers went bust in September 2008, its last CEO begged the US government for a gigantic credit line to keep his bank afloat. Suppose that, in response, the US president had replied: “No bailout and, also, I am not allowing you to file for bankruptcy!” It would be utterly absurd. And yet that was precisely what Angela Merkel told the Greek prime minister in January 2010 when he desperately begged for help to avoid declaring the Greek state bankrupt. It was like telling a falling person: I am not going to catch you, but you are not allowed to hit the floor either.

What was the point of such an absurd double nein? Given that Merkel was always going to insist that Greece take the largest loan in history — as part of the hidden second bailout of the German banks (see above) — the most plausible explanation is also the saddest: Her double nein, which lasted a few months, succeeded in infusing such desperation in the Greek prime minister that, eventually, he agreed to the most crushing austerity program in history. Two birds were thus killed with one bailout: Merkel surreptitiously bailed out the German banks for a second time. And universal austerity began to spread out across the continent, like a bushfire that began in Greece before spreading everywhere, including in France and Germany.

Episode 3: To the Bitter End

The pandemic offered Angela Merkel a final chance to bring Germany and Europe together.

Great new public debt was inevitable, even in Germany, as governments sought to replace incomes lost during the lockdown. If there was ever a moment for a break with the past, this was it. The moment was crying out for German surpluses to be invested across a Europe that, simultaneously, democratizes its decision-making processes. But Angela Merkel’s final act was to ensure that this moment would be missed, too.

In March 2020, in a fit of harmonized panicking following our EU-wide lockdowns, thirteen heads of EU governments, including France’s president, Emmanuel Macron, demanded from the EU the issue of common debt (a so-called eurobond) that would help shift burgeoning national debt from the weak shoulders of member states to the EU as a whole, so as to avert massive Greek-style austerity in the post-pandemic years. Chancellor Merkel, unsurprisingly, said nein and offered them a consolation prize in the form of a recovery fund that does precisely nothing to help shoulder the rising national public debts — or to help press German accumulated surpluses into the long-term interests of German society.

In typical Merkel style, the recovery fund’s purpose was to seem to do the minimum necessary of that which is in the interests of a majority of Europeans (including a majority of Germans) — without actually doing it! Mrs Merkel’s final act of sabotage had two dimensions.

First, the recovery fund’s size is, intentionally, macroeconomically insignificant; that is, too small to defend the EU’s weakest people and communities from the austerity that will eventually come once Berlin gives the green light for “fiscal consolidation” in order to rein in the burgeoning national debts.

Second, the recovery fund will, in reality, transfer wealth from the poorer Northerners (e.g., the German and Dutch) to Southern Europe’s oligarchs (e.g., Greek and Italian contractors) or to German corporations running the South’s public utilities (e.g., Fraport, which now runs Greece’s airports). Nothing could more efficiently guarantee the further toxification of Europe’s class war and North-South divide than Mrs Merkel’s recovery fund — the final act of sabotaging European economic and political unity.

A Concluding Lament

She casually engineered a humanitarian crisis in my country to camouflage the bailout of quasi-criminal German bankers, while turning proud European nations against one another.

She intentionally sabotaged every opportunity to bring Europeans together.

She skillfully connived to undermine any genuine green transition in Germany or across Europe.

She worked tirelessly to emasculate democracy and to prevent the democratization of a hopelessly antidemocratic Europe.

And yet watching the pack of faceless, banal politicians jostling to replace her, I very much fear that I shall miss Angela Merkel. Even if my assessment of her tenure remains analytically the same, I suspect that, before too long, I shall be thinking of her tenure more fondly.