At the height of the euro zone crisis, one of Angela Merkel’s close advisers explained to me her driving ambition: to bequeath to her successor a stronger chancellery than the one she inherited. If so, as Merkel prepares to retire, she should be elated.
Germany’s trade surpluses, and therefore its political weight, are much greater today than when it came to power in 2005. However, the policies responsible for widening Germany’s surpluses, and therefore strengthening of the Chancellery, condemned the country to secular decline and the European Union to stagnation. Rarely have power and paradox mingled in a more startling way than during Merkel’s tenure.
The collapse of Wall Street in 2008 revealed two painful truths to him: that judging by the unfathomable size of their dollar-denominated bets, the German banks had been even more criminal than the Americans. And these persistent trade surpluses, on which Germany’s economic model was based, had forced wealthy Germans to turn their savings over to indebted foreigners, while undermining the standard of living of the poorest Germans. How did she respond? By spending the rest of his term covering these flaws.
Merkel is not responsible for Germany’s current business model. This was established by Gerhard Schröder, his Social Democratic predecessor, whose administration stole a competitive march on France and the rest of the eurozone by embedding austerity into the post-war mercantilist model of the Germany. Merkel’s responsibility lies in how she sought to maintain this approach after the 2008 financial crisis revealed her unsustainability.
The crash made German banks insolvent. To hide this fact, in order to maintain the country’s economic model and the fragile economic architecture of the euro zone, has required successive bank bailouts. In turn, these forced Merkel to argue that the banks were not facing bankruptcy but, instead, temporary “illiquidity” difficulties. So in 2008, the first Merkel administration succeeded in injecting around 500 billion euros of German taxpayers’ money into the country’s failing banks.
When a year later, this bailout proved insufficient to bail out German banks, a second was devised. The poorest taxpayers in the eurozone would take out a loan of 110 billion euros to the Greek government on condition that the money is channeled to German (and French) banks. To convince the Bundestag to approve this ridiculous plan, it was presented as a case of “hard love” for the unbearably spendthrift Greeks. In essence, Merkel was proposing to her parliament to export to the rest of the eurozone (starting with Greece) the austerity imposed first on German workers – only, this time, with a cruelty that will keep social historians busy for a while. decades.
Other bailouts followed. However, at the end of 2011, something had to give. Once the public compared the bailouts to credit cards issued to pay off previous credit cards, they had to stop. A new source of liquidity had to be found that bypassed parliaments while continuing to cover soaring bad debts. That source was to be the European Central Bank (ECB) and Mario Draghi, its newly appointed president, was the right fit.
However, in order to operate the printing presses of the ECB, Merkel and Draghi first had to overcome two major obstacles: one was the Bundesbank. Never having accepted its loss of control over the German currency, the central bank resisted the Merkel-Draghi plan. The second was Greece’s first Syriza government, elected with a clear mandate to challenge the combination of permanent bailouts and austerity.
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By the summer of 2015, both obstacles had been overcome. The crushing of Syriza by Draghi, whose ECB shut down Greek banks for this purpose, allowed Merkel to kill two birds with one stone. First, to signal to other Europeans not to dare to elect an anti-austerity government. Second, bypass the Bundesbank’s objections by showing German elites that printing euros to buy bad debt does not undermine the ongoing class war (also known as austerity) against German and European workers.
In 2018, Merkel and Draghi, aided by a global economic recovery, claimed victory. Their opponents (inside and outside Germany) were firmly defeated, German surpluses continued to grow, and European democracies showed no sign of generating serious dissent.
But at what cost ? The permanent cover-up of state and bank failures pushed investment across Europe (in proportion to available liquidity) to its post-war low. While in 2007 European companies earned around 100 billion euros more than their American counterparts, in 2019 the situation had reversed. It wasn’t until 2019 that US corporate profits grew 50% faster than in Europe. In 2020, due to the pandemic, American companies lost 20% of their profits, but European companies lost 33%. European capitalists, and not just workers, seem to have paid the price for Merkel and Draghi’s success.
Defenders of the Chancellor often respond by claiming that she is responsible for the prosperity of Germany, not that of Europe. But even that does not wash away. Because, besides a stagnant Europe, Germany itself suffers from low investment. The result? Poor quality jobs, appalling digital networks, a growing dependence on Russia for energy, dilapidated infrastructure, an automobile industry and an artificial intelligence industry that is rapidly falling behind those of the states United and China.
Even the surpluses Merkel helped Germany accumulate are wasted. Since 1999, they have been devalued by 7 percent (compared to a 50 percent gain for US assets). Why? Because the low domestic investment forces the rich to lend their reserve of trillions of euros to various foreigners whose subsequent distress causes heavy losses.
On September 26, 2021, German voters will go to the polls to elect Merkel’s successor. Is there any chance that the next chancellor will stop the policies of expanding surpluses that cannot be invested in Germany or the euro zone without giving up Germany’s future ability to extract more surpluses? Not really.
Olaf Scholz, the Chancellor candidate of the Social Democrats, who has become the frontrunner, presents himself as Merkel’s natural successor – a credible claim given his budgetary conservatism, not to mention the fact that he has been Merkel’s finance minister since. 2018. Moreover, of the five parties that have a realistic chance of entering a new coalition government, only the Greens can contemplate a break with Merkel’s legacy. However, even if they win the chancellery, they won’t control the key finance ministry – and vice versa.
It is therefore difficult to imagine the end of Merkel’s greatest legacy to her successor: the paradox of increasing German surpluses, strengthening the power of the chancellery, pushing Europe deeper into a quagmire of stagnation, while weakening the German workers and, simultaneously, diminishing Germany’s capitalism.