Dawn of the German era

Meanwhile, further afield, the actions of Donald Trump and Vladimir Putin are serving to undermine the global rules-based order that Germany has always held as the gold standard and are making clear that defence capabilities, and not just soft power, will be required in the coming years.

In the wake of Trump’s election last year media outlets were quick to proclaim Angela Merkel, the German chancellor, the new ‘leader of the free world’, marking a step up from her de facto leadership of the euro zone during the bloc’s sovereign debt crisis. Merkel, however, was circumspect in her response. Given Germany’s role in European history, its already oversized political clout in the region and the largest economy in the euro zone, as well as the financial outlay that shouldering a global leadership role would entail, Merkel has been extremely hesitant to take on this role. At the same time the various threats posed by Trump and Putin, as well as potential flashpoints elsewhere in the world – notably the Gulf region and North Korea – have made the need for strong European leadership increasingly pressing.

In this context the election of Emmanuel Macron as French president came as a relief. Macron campaigned on the promise of a stronger EU and a more integrated euro zone, and his actions since taking office have shown that he also intends to assert himself on the international stage. Germany has long-standing concerns about French desires for greater risk-sharing in the euro zone, which the public typically interprets as being required to bankroll more profligate neighbours, and does not intend to make any compromises until France raises its growth rate and narrows its fiscal deficit. Nonetheless, a more balanced Franco-German partnership is in both countries’ interests, and Merkel has so far appeared cautiously receptive to Macron’s proposals for euro zone reform.

His proposals hinge on the creation of a common euro area budget – for joint investment projects, responding to economic shocks and emergency financial assistance – to be handled by a euro zone finance minister. Macron and Merkel seem to be in agreement that these and other plans for greater integration could be undertaken by ‘flexible constellations’ of eurozone members on an opt-in basis comparable to the steps taken by a subset of EU countries to move forward on greater defence integration.

Long-standing concerns about whether the creation of a multi-speed Europe would lead to disintegration are being superseded by a sense that building confidence in the bloc will only be possible by achieving solid results, and that allowing flexibility on who enters different projects is the best way to demonstrate the advantages of membership. Whether such plans prove practicable remains to be seen, but the will to try is now apparent. How far Germany is willing to go in reforming the single currency area will depend on the results of Sunday’s general election.

I expect Merkel to win a fourth term as chancellor, but her room for manoeuvre will depend on which party (or parties) her Christian Democratic Union (CDU) is able to form a coalition with. The liberal Free Democratic Party (FDP), for instance, would be less receptive than the Greens or the Social Democratic Party (SPD) to further euro zone integration.

Nonetheless, there has been a shift in the political messaging on this topic in recent months, with Merkel sounding a much firmer note about the necessity of euro zone reform. In part, this reflects the change in the geopolitical context and the greater awareness of external threats against which Europe needs to protect and define itself.

Merkel’s sense that the UK, the US and Russia are no longer reliable partners on the global stage is a driver of her desire for a strong Europe, and in particular a strong Franco-German relationship. However, her greater openness to reform also reflects the improvement in the economic context. With the euro zone experiencing a robust cyclical upturn and Germany on track to record its fourth consecutive budget surplus this year, there is now more money to play with, making ambitious reforms more feasible.

Defence spending has been a polarising issue in the election. Trump has criticised his European NATO allies for not spending enough, and this has posed a particular dilemma in Germany, where there is a deep-seated, historical distrust of military institutions and a reluctance to reverse the post-war demilitarisation. Merkel has pledged to increase German spending on defence, from 1.2% at present to the NATO target of 2% by 2024, but the SPD objects to this and has sought to present her decision as pandering to Trump.

Raising EU defence spending and co-operation is less controversial, however, with all of the mainstream German parties in favour and the economic context increasingly favourable. The role that greater military investment might play as a stimulus programme is a further point in its favour. Having a military force that can act as a credible deterrent at the centre of Europe is considered more important by European policymakers in the wake of Russia’s annexation of Crimea in 2014. Germany had enjoyed decades of comparatively good relations with Russia prior to this, building partnerships in areas such as energy and education, and encouraging modernisation. However, Germany is also a strong believer in the rules-based international order, and Russia’s actions in Ukraine were a flagrant violation of this.

In response, Germany became one of the strongest EU proponents of sanctions on Russia in 2014 and has remained so ever since. Pragmatic co-operation between the countries will continue – especially on energy – but the threat of a military accident on the border of a NATO state, an escalation of the conflict in Ukraine or further Russian cyber-attacks in Europe makes Germany now a more circumspect partner.

Continued co-operation, albeit on a deeper level than with Russia, will also be Germany’s strategy for dealing with the US. The US is, and will remain, Germany’s largest export market outside the EU and its most important non-EU partner on the international stage. Calls for Europe to raise its defence spending predate Trump’s presidency, as does the US’s broader disengagement from Europe as a focus of foreign policy, which began with the previous administration’s ‘pivot to Asia’.

The US’s gradual withdrawal from its global leadership role is a further driver of greater German – and EU – foreign policy heft and more serious investment in defence capabilities. In the short to medium term Europe will continue to rely on the US’s military might for Europe’s defence. In the longer term, however, Merkel is looking to build a much stronger and more independent Europe.

Emily Mansfield is a Europe analyst for the Economist Intelligence Unit, a forecasting and advisory service