Frau Germania

How Angela Merkel's selfishness is killing Europe.

These are unhappy days for Europe: Countries are starving for credit, international experts are predicting the slow unraveling of the euro, and the continent's national politicians have felt compelled to defend their honor by way of references to belligerent incidents from the not-so-distant European past. And the unhappiest European at the moment may be the person most trusted to lead the European Union out of its turmoil: Angela Merkel, Germany's chancellor, who, caught between the dual masters of a dissatisfied German public and a roiling EU, lurched in too many directions and finally froze in place as the crisis progressed. Merkel's abdication of Germany's leadership in the EU over the past few months ranks as a catastrophe of the worst order: wreaking maximum political damage on everyone involved, while also risking continued long-term chaos.

"I can't remember a similarly disastrous set of actions since 1949 [the year that the Federal Republic of Germany was formed]," former German foreign minister Joschka Fischer told Der Spiegel magazine when asked to put Merkel's foreign policy in context. "In the past few weeks, Angela Merkel had her rendezvous with history. Unlike Helmut Kohl on November 2, 1989, or Gerhard Schroeder after September 11, 2001, Merkel blew it."

Merkel's fumbled blind date with the history books began in March, when she decided to halt France's early plans to establish an EU mechanism to aid debt-ridden Greece. Convinced that Greece had yet to establish a firm enough commitment to thriftiness, the chancellor stressed that only in the case of "very serious difficulties" could Athens ask for help -- which Merkel ensured would only come in the form of ad hoc bilateral loans from European countries, with contributions and oversight from the IMF. Having set such an unexpectedly nationalist hard line on behalf of Europe's largest economy, Merkel seemed to revel in the subsequent notoriety: The media dubbed her "Frau Germania" and invoked the legacies of Margaret Thatcher ("Maggie Merkel") and Otto von Bismarck ("the Iron Chancellor"). As Greece's credit worsened, Merkel nonetheless fueled the perception that she would rather kick indebted countries out of the currency zone than offer hard-earned German money to spendthrift southern Europeans. As late as the end of April, members of Merkel's political party were telling the press that Greece "must seriously consider leaving the Eurozone." It was also transparent that Merkel was hoping that her tough, populist stance would help her party win an important regional election on May 2.

But Merkel's firm stand didn't last. Toward the end of April, Dominique Straus-Kahn, head of the International Monetary Fund, and Jean-Claude Trichet, chief of the European Central Bank, warned Merkel's government that without the immediate assurance of funds, Greece threatened to collapse at the hands of the bond markets, bringing the whole of Europe down with it. Merkel finally pushed through a 150 billion euro bailout, but it was too little too late. With international investors still too nervous to buy in, the EU ultimately cooked up a sprawling, trillion-dollar aid scheme during an emergency weekend conference: essentially the same deal that Merkel could have had back in March, except more expensive and riskier. And this time, President Nicolas Sarkozy of France had no qualms about declaring that the design was "95 percent French," putting Merkel in an awkward political spot at home.

Germany's leadership over Europe is profoundly fragile, since its foundation is a matter of faith -- it rests on the German public's belief that Germany's national interests are broadly symmetrical with the EU's aggregate interest. Merkel's bends back and forth earned her the dubious distinction of both having lost credibility with other European countries -- who now suspect her of harboring nationalist and protectionist impulses that dramatically raised the cost of a European bailout -- while also losing credibility with the German public, who think that their parliament was hoodwinked into swallowing a plan that was hatched in other capitals and essentially serves other countries' interests. On a foreign-policy issue that conceivably should have compelled a wide consensus, the Bundestag saw on Friday a strict party-line vote on the 750 billion euro rescue deal that suggests a lack of confidence in Merkel's leadership and bodes poorly for the passage of any further emergency measures.

Merkel has now tried to re-claim leadership over the continent's affairs and her own domestic popularity by proposing a ban on short-selling on European financial markets, the better to convince the public that she can still compel Europeans to follow the German lead. But the proposed ban just reinforced the belief among other Europeans that Germany is more concerned with poll numbers at home than the EU's fundamental health. France's Foreign Minister Christine Lagarde suggested that Germany "at least first get the advice of other member states."

With Merkel knocked out by the lethal combination of European and German mistrust, there are few countries, if any, able to fill Germany's role in cooperatively mediating EU disputes, and Europe is in real danger of failing as a collective body. Sarkozy would clearly like to assume the mantle of Europe's de facto leader, but countries like Britain, the Netherlands, and Finland won't be eager to subscribe to France's traditional vision of a loose-money, free-spending EU. They may feel compelled to openly oppose pushing nominating a hard-line monetarist as the head of the European Central Bank, setting up conflict and stalemate for years to come.

So how did Merkel get it so wrong? One issue may be temperament. Merkel, a trained physicist, naturally assumes the role of a disinterested observer during political debates, preferring delay over action when conditions are uncertain. Patience has largely served her well in her political career, as she's gained credit for successes that have been spearheaded by others while avoiding blowback from controversial decisions. But in financial markets, where psychology is as much of a factor as underlying fundamentals, waiting also carries its own risk. What Merkel thought of as observation, as she hesitated for months before designing a bailout for Greece, international investors saw as a losing bet.  

Merkel made some stunningly bad decisions, too, displaying a striking lack of understanding about the limits of German power. It's true that Germany is the most powerful country in Europe. But Germany needs the EU just as much as the EU needs Germany: German power isn't much good if the country is constantly engaged in negative-sum relations with its many neighbors.

Because of this, previous chancellors had all sought to convince Germans that their national interests dovetailed closely with the common European interest. From Konrad Adenauer to Gerhard Schroeder, Germany's chancellors went out of their way to build and emphasize Germany's close relations with France, even if those relations occasionally had the air of deference and even if they demanded suppressing personal differences. Merkel, on the other hand, who was raised in isolated communist East Germany, prefers to defend Germany's personal interests, defensively insisting that Germany is a "normal country." But while Germans may feel liberated in the short term by thumbing their noses at their allies, Merkel's isolationism will eventually mean a less comfortable neighborhood and a weaker Germany.

Moreover, Merkel has neglected to pay attention to the ways that the European Monetary Union was designed to evolve in one direction, toward "ever closer union," in the words of 1991's Treaty of Maastricht. As historian of the euro currency David Marsh pointed out in his book, The Euro: The Politics of the New Global Currency, the founders of the euro knew it would eventually require European countries to integrate their national economies. With Germany's banks deeply leveraged in Greek debt, Merkel should have acknowledged early on just how much a Greek default would have been a German problem. And she should not have so blithely waved off repeated criticisms from France that Germany's trade surpluses were causing problems for its neighbors. These sorts of problems were predictable and correctible, but not if one chose to view them, as Merkel seemed to, as embarrassing and insulting.

What Merkel now needs is to summon words of pathos about the fate of the EU, to convince publics both domestic and foreign about the sincerity of her commitment to the continent's collective fate. One can only hope she was taking notes at the recent 80th birthday celebration of former chancellor Helmut Kohl, who openly declared that the EU's current financial crisis was a matter of "war and peace." Referring to his work creating the euro currency and its "guarantee of peace" for the continent, the ailing Kohl said, "I can honestly say that my life had a meaning." Unfortunately, Merkel has cultivated a political persona that is dispassionate and drily analytical. It's helped her stay in office, but at times like this, it hasn't made her much of a leader. And ultimately it's Europe that may suffer the greatest consequences.

Carsten Koall/Getty Images


Time to Defriend China

The quest for the illusory "G-2" has wasted everyone's time for long enough.

"This is not a G-2." With those words, Deputy Secretary of State James Steinberg finally sounded on May 11 at the Brookings Institution the death knell for the much-touted, if misguided, idea that China and the United States would band together to solve the world's problems.

The idea of a "G-2" was first introduced by C. Fred Bergsten, director of Peterson Institute for International Economic, as a mechanism for promoting agreement between the two sides primarily to address international economic issues. However, it migrated to strategic issues, championed by old Washington hands like Henry Kissinger and Zbigniew Brzezinski. The idea resonated with the White House and Foggy Bottom, where hopes were high for joint efforts to solve the financial crisis and address climate change. As Secretary of State Hillary Clinton remarked in a February 2009 visit to Beijing, "The opportunities for us to work together are unmatched anywhere in the world."

That hope was short-lived. It has become painfully clear during the first year of Barack Obama's administration that mismatched interests, values, and capabilities make it difficult for Washington and Beijing to work together to address global challenges. China's unwillingness to sit down with the United States and its maneuverings with India, Brazil, and South Africa to undermine a larger agreement at Copenhagen were clear signs that building a special relationship would not be easy. America's approval of arms sales to Taiwan in January and the Dalai Lama's visit with Obama in February returned both sides to old suspicions and sensitivities.

But while we now have a more realistic assessment of what the U.S.-China relationship is not, we still lack a positive formulation of what it is -- or should realistically become. Next week's U.S.-China Strategic and Economic Dialogue (S&ED), the annual high-level dialogue on economic and political issues led by Clinton and Treasury Secretary Tim Geithner on the U. S side and Vice Premier Wang Qishan and State Councilor Dai Bingguo on the Chinese, is unlikely to address this lack of a larger framework. In fact it will compound the problem.

In the run-up to next week's meetings, U.S. officials have been all over the map in framing the topics for discussion. State Department officials have identified at least 20 issues of strategic importance to discuss in Beijing. The Treasury Department has laid out an equally broad agenda that includes trade and investment barriers, balanced growth, financial reform, and strengthening the international economic and financial architecture. Meanwhile, some White House officials have mentioned specific goals, such as RMB revaluation; others have said the goal is the development of a larger framework to address strategic issues; still others have said they hope that by putting controversial issues like local content requirements on the agenda, they can get the most senior Chinese officials to make decisions on topics that would typically disappear within the bureaucracy.

These are all worthy objectives and outcomes, but the lackluster history of similar dialogues suggests there are better ways to spend our time and effort. Past such dialogues have achieved only modest success delivering on specific goals. Yes, it's true that the last S&ED yielded agreements on EcoPartnerships, collaboration on electric vehicle standards, and development of smart grids. Yet such small-scale cooperation and capacity-building have been a staple of U.S. energy and environmental talks for decades. These narrow goals would hardly seem to merit flying more than a dozen U.S. cabinet members and agency heads crossing the Pacific.

Let's be realistic: Progress on core U.S. strategic interests largely emanates from outside such talks. For instance, at Copenhagen, China reversed its stance on two core issues related to its climate change negotiation position, establishing voluntary emission reduction targets and offering to move to the back of the line for international funding assistance. Both of these moves, however, were a response to concerns in the developing world, not U.S. pressure. Similarly, Beijing's apparent willingness to rescind the most controversial portions of a proposed government procurement strategy that would have closed off a large portion of the Chinese market to foreign technologies arose from widescale global protest, not simply U.S. objections. And China's recent decision to support the U.S.-led sanctions against Iran depended largely on Russia folding first and leaving China without political cover to maintain its opposition.

Having expended significant time and energy creating this overarching bilateral dialogue, the temptation for the Obama administration will be to keep the S&ED, move forward on all fronts, and see what sticks. This would be fine if the issues didn't actually matter and our policymakers had unlimited time and patience. Neither is the case.

Joshua Cooper Ramo, Kissinger Associate Managing Director, has suggested a second option: disband the S&ED. In its place, the two sides would build à la carte dialogues around issues of real strategic interest that can be established and disbanded at will. This would free hundreds of people to work on other pressing issues, as well as eliminate the almost inevitable cycle of Washington defending what it did or did not get from high level dialogues. But it would also mean the loss of institutional continuity and personal connections that are an important part of the bilateral relationship, especially in times of crisis.

Going forward, it makes the most sense to keep the S&ED, but to downsize it. The Treasury secretary and the secretary of State should continue their discussions with their Chinese counterparts about the broad strategic issues in the relationship, but everybody else should stay home. Issue-specific discussions should be carried out by individual agencies on their own timelines: The Joint Commission on Commerce and Trade will continue conducting negotiations on innovation and industrial policy will carry on in; and the Department of Energy, the EPA, and the National Science Foundation will continue their good work on energy and climate change.

Downgraded dialogues would also more closely resemble the true state of U.S.-China relations. It would be a symbol of the possibility of greater cooperation when, and if, there is a convergence of the values, interests, and capabilities of the two sides. It would recognize the importance of the bilateral relationship, but simultaneously acknowledge that less is likely to be accomplished just by Washington talking with Beijing.

The sticking points in U.S.-China relations are mirrored in China's relations with much of the rest world. The European Union and Japan, for example, find it no easier to negotiate with China on issues such as trade, climate change, cyber conflict, and the Dalai Lama. As a result, the United States is more likely to make progress when it spends time and energy cultivating allies throughout the rest of the world. We shouldn't shed any tears for the G-2. Its demise enables us to make real progress with China by looking elsewhere.