Transcript: Q&A

Germany and Europe:

Uncomfortable Leadership
Lord Green of Hurstpierpoint
Author, Reluctant Meister: How Germany's Past Is Shaping its European Future

Hans Kundnani
Research Director, European Centre for Foreign Relations; Author, The Paradox of German Power

Chair: Quentin Peel

Mercator Senior Fellow, Europe Programme, Chatham House

19 January 2015

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2 Germany and Europe: Uncomfortable Leadership: Q&A

Question 1
I would like to ask Hans a little bit more about Germany's fears: economic fears, fears of a coalition of
weak economies rather than a coalition of powerful forces and military forces as before. I'd like to take
you back to the situation before the euro, when there was a coalition of the willing (economically) around
the Deutsche Mark. I mean, it was called the Deutsche Mark zone. Is there a possibility that Germany,
faced with the deadlock in the eurozone which is likely to get worse no signs of it getting better would
actually come back to thinking in terms of reconstituting this coalition of the willing, in monetary terms?
At that point, what happens to the political relationship, above all with France but also with Italy and the
[indiscernible] in general?

Question 2
I'm concerned about the feeling that I'm getting that we're looking at Germany as a monolith and as a
hegemonic power, when a lot of the commentaries I'm reading seem to suggest that there are huge
internal stresses and potential strains within the country. I mention simply the aging infrastructure,
which is lacking investment; the aging manufacturing base in parts of the country, again which is lacking
investment; the aging population, though we've all got that problem; the failure of the traditional
tolerance toward immigration which we're seeing in the current protests by PEGIDA. Then continuing
fallout from the reunification, where Ossis are still complaining they're not getting the rights and the
salaries and the opportunities that they feel their cousins, the Wessis, are obtaining. So I see that
Germany is potentially in a much weaker position to negotiate than you seem to be suggesting. I'd love
your commentary on that.

Question 3
Given Britain's particular relationship with Germany, stretching back to the point where in the 1750s, the
Elder Pitt proclaimed that 'we are winning our empire on the banks of the Elbe', and Frederick the Great
appeared on every beer mug in every pub in England leaping forward now to the point where Britain are
looking again, in a sense, at our cousins across northern Europe, I'd be very interested to know how you
would characterize our present relationship with Germany and whether we can exercise any kind of
influence together with Germany to break the European deadlock.

Lord Green
To the second question, yes, I think there are plenty of internal sources of German angst it's not for
nothing that angst is a German word, by the way. Germans worry endlessly about what is happening to
their body politic and the economic prowess that they've grown up with. You mentioned demographic
aging and you said we're all getting older well, not as fast as the Germans are. They have a real
demographic problem. Indeed, on some forecasts and depending what you assume happens to Turkey in
the context of the EU, Germany could end up being the fourth-largest country in the EU after (Turkey
depending) Britain and France. Not between here and next week, obviously. That has its implications for
the economic burden, the dependency ratio. You say lack of investment that wouldn't be quite true, but

3 Germany and Europe: Uncomfortable Leadership: Q&A

certainly many people feel that not enough investment has been taken in the business. Infrastructure
some spectacular cases, of course, of infrastructure failure in Germany. Then last and absolutely not least,
the Energiewende, which is going to cost the German economy an enormous sum going forward. So there
are plenty of reasons why Germans worry about their own economic model. They're not the only ones that
should be worrying about their own economic models, as an aside.
It is worth noting how the Hans has alluded to this and I would just very quickly elaborate on it what
do the Chinese think when they look at Europe? They look first of all at the EU itself and see it as a
relatively weak congeries of countries which punches, in terms of geopolitics, well below its weight. They
then look at the three largest countries of Europe, and they look at Britain and see a country that's
economically open. They like the liberalism toward inward investment. They like it as a bridgehead to the
wider market of the European Union. I think they would be dismayed to see Britain withdraw. They worry
about Britain's stability in the wake of the Scottish referendum and with the prospect of an EU
referendum. They look at France and they worry about the same sorts of things that everybody else
worries, including the French themselves, about how on earth it's going to rejuvenate its socioeconomic
model.
And then they look at Germany and they see a country -- they don't see all the well, of course they see,
but they don't measure on the difficulties we've just enunciated. They see a country that still produces the
best cars in the world, produces an extraordinary array of capital goods. A country which is one of the very
few that's seen almost no loss in export market share with the rise of the emerging markets. Germany is
the only country to whom they vouchsafe senior, regular, government-to-government meetings of
ministers. That tells you all you need to know about what the Chinese, at any rate, think about who's
important in Europe.

Hans Kundnani
I suppose in a sense Anthony's question was: would Germany be prepared to countenance a breakup of
the euro at some point?

Question 1
Or a looser kind of monetary association, to which the UK and Poland, for example, could join.

Hans Kundnani
Okay. My impression is, as Stephen was saying, there is this enormous political commitment to the euro
in Germany. I find it very hard to imagine that at some point Germany might be prepared to tolerate a
breakup. My fear is almost not that Germany does get to that point, but that precisely because Germany is
so committed to the euro as Angela Merkel has said, she thinks if the euro breaks up, the EU breaks up
precisely because of that fear, she and many pro-Europeans in Germany are prepared to do almost
anything to keep it together. What that means is that actually the costs of keeping it together and I think
we've seen this to some extent already could be quite extraordinary. It could actually mean

4 Germany and Europe: Uncomfortable Leadership: Q&A

transforming the EU into something very different from the EU we know, and very different from the EU
the founding fathers had in mind, just in order to keep the single currency together. That's really my fear,
rather than actually a breakup.
However, a caveat to that is that it's interesting to me that the growth of German Euroscepticism (on
both the right and the left, actually) and given how quickly the Alternative fr Deutschland (the
Eurosceptic party there) has grown, and if you listen not just to them but to serious academics, to the
Frankfurter Allgemeine, I wonder whether there may come a tipping point or a breaking point, as it were,
where Germany says, 'We can't go any further'. Then you're back to a very acute crisis that could lead to a
breakup of the euro.

Quentin Peel
This is where I would disagree with you, Hans. One, the media you quote Frankfurter, Bild, Spiegel
have always been against the euro. They have never at any stage been supportive. So quoting them as sort
of representing, if you like, a very clear swing in Germany isn't really on. Secondly, I would disagree about
something else, which is that Draghi and Merkel are actually at loggerheads. When Draghi said, 'I'll do
whatever it takes', I'm 98 per cent convinced that Angela Merkel had said, 'Go for it'. She has throughout
allowed him to do what he was doing and not spoken out against it. She's allowed Jan [indiscernible], you
know. So it's a much more subtle thing. I think this is where we come back to perhaps also the differential
mood. I wouldn't overrate the rise of the Alternative fr Deutschland.
But I want to come to the third question, because you both have thoughts about just how you would
characterize the British-German relationship. Stephen, you've been a minister right in there, and a
banker.

Lord Green
Let me start by answering not from either of those perspectives, because I do think what we've been
discovering in the last year or two and it is quite recent I think the question actually used the word
'cousins', and I do think we've been rediscovering some of that deeper connectivity that goes back to the
17th century. It was James I's daughter who was married off to Friedrich V, elector of the Palatinate,
whose daughter becomes Sophie, whose son is George I. (Have I got all that right? I think so.) Then
through the 18th and really into the 19th century, the proliferation of connections is something we're
beginning to remember. They are extraordinary. Von Tirpitz sent both his daughters to Cheltenham
Ladies College. Bethmann-Hollweg had a son at Oxford, and you can go on. And on the other side too.

Quentin Peel
But with all this, why do we misunderstand each other?

5 Germany and Europe: Uncomfortable Leadership: Q&A

Lord Green
Because there was the caesura of the First World War, which then changed it. But we're rediscovering that
heritage. There is also the football phenomenon. I do think 2006 it's easy to laugh but actually 2006
subtly established Germany as the Weltmeister (there you have Meister again) and made Berlin a cool
place to go. Now if you try to get on a plane to Berlin they're almost always chockablock, because it has
become not merely the place that politicians trek to and businesspeople get drawn to, but also it's the
place for hen parties, it's the coolest place for hen parties and so on.

Quentin Peel
Do you go to them?

Lord Green
I don't get invited. So I think we're beginning to rediscover that. Ironically, I don't think that translates
into necessarily an easier dialogue over the question of the relationship between Britain and the rest of
Europe. I insist on using that phrase 'the rest of Europe'. The Germans will be dismayed if Britain leaves. I
might as well say it: I think it will be disastrous if we leave. But certainly the Germans would be dismayed
if Britain left, for all sorts of reasons. They'd be afraid of what the rest of the remaining Europe would be
like to operate in. They'd be afraid of themselves, I think.

Quentin Peel
Which is why you've got this fascinating relationship between Merkel and Cameron.

Lord Green
Yes. And yet there are also the red lines. They will not countenance any suggestion that we should tug the
rug from under the four fundamental freedoms embedded in the treaties. We all know what the
implications of that are for any potential negotiations. So on the one hand, you've got some real
difficulties, and on the other hand, a kind of readiness to try and work with each other (and work quite
hard with each other, on their side) and the beginnings of a rediscovery of some historic relationships that
went really quite widespread.

Quentin Peel
Hans, why do we misunderstand each other all the time?

6 Germany and Europe: Uncomfortable Leadership: Q&A

Hans Kundnani
I'm not sure the problem is a lack of understanding or a lack of will. I don't think, in the end again, I
have a slightly darker take on this I don't think that having culture in common really helps. It seems to
me that there is a structural problem. Again, I do think there are some parallels with the previous
situation between Britain and Germany. In one sense, what seems to me to be happening now is that both
Britain and Germany are sort of reverting to their historical pathologies in relation to Europe. On the one
hand, Germany reverting to this position as Europe's central power; Britain, on the other hand,
disengaging, as it's done many times in the past, only at some point to realize that its national interests
are so directly at stake that it needs to intervene. Again, I'm not suggesting for a moment that there's a
danger of war. This is the idea of a sort of geo-economic version of these historical patterns. But it does
seem to me that you do have this dynamic now where Britain is finding itself increasingly marginalized
within the EU and Germany is increasingly powerful within the EU. That has a dynamic of its own, which
it's not necessarily possible for politicians or ordinary people just to show greater understanding of each
other and overcome that.

Quentin Peel
I see the problem as being that Germany sees the European Union as a place to find solutions to problems
and the Brits tend to see the European Union as a problem that needs a solution.

Hans Kundnani
Yes. It still begs the question why that is though, why we have such different perceptions.

Question 4
Relations between Germany and Poland. Pomerania and Silesia were two large territories, and wealthy
ones, that were essentially lost in 1945. When Poland became a full-fledged member of the EU, as I recall,
there was a seven-year moratorium on land purchases because the Poles were very sensitive on that
subject. That's passed now and yet we haven't heard much about it. My guess is there's an awful lot of
German money going east into Poznan, Breslau, Wroclaw, etc. Do you think that Poland could solve
Germany's demography problem without having the distaste of Islam, which is what the issue is about
Turkey and the gastarbeiter? Secondly, do you think that Poland as a rising power, given it is growing
and it has a lot of people, can be a counterweight to France? You mentioned earlier about a new eurozone
with Poland in it. There are moving parts here.

Question 5
At a seminar the other week, in fact just on Friday, we were talking about the usual complaint that in the
security and defence arena, Germany does not pull its weight militarily, even though it is of course the
European economic powerhouse. It was raised at the seminar, however, and I would be very grateful for

7 Germany and Europe: Uncomfortable Leadership: Q&A

the views of the panel, how comfortable would Germany be and indeed would the rest of Europe be if
Germany does increase its defence spending to the NATO standard of 2 per cent? It was suggested that
could mean as many as 250,000 extra soldiers. Is that something that everybody, both in Germany and
outside Germany, is comfortable with?

Question 6
On the question of hegemony, economic now, that you've translated into an economic hegemony it's not
acting as a German nation, it is acting as the major creditor. Just as Washington, with the Washington
Consensus, acted as a creditor to these insolvent countries who couldn't run their own economies. The
thinking in Berlin is no different from the thinking in Washington during the Latin American debt crisis.
So it has obviously something to do with Germany but essentially it's a creditor-debtor relationship.

Hans Kundnani
Poland, I think, is one of the most fascinating countries in Europe right now, partly for the reasons you've
described. Some people have suggested that Poland is the new France, from a German perspective. I'm
slightly sceptical about that. I don't think Poland does quite have the weight to play that kind of role.
You're right that there's lots of German money in Poland that's welcomed by the Poles. In fact, there's a
security dimension to that, which is that I've heard Polish officials talk about the euro as a geopolitical
initiative. Even if it's not in Poland's benefit in economic terms to join the single currency, it has a
strategic benefit, which is essentially the idea that the more German money you have in Poland, the more
secure you are. I think though there's a bit of rethinking going on since the Ukraine crisis began. In
particular, a kind of return in Polish thinking towards NATO as the kind of real security guarantee and a
little bit of frustration about Germany since the Ukraine crisis began.
On German defence spending, I think most people would be comfortable with an increase. I suppose it's
not just about defence spending as a proportion of GDP though, it's also partly a question of capabilities
and a willingness to deploy those capabilities. But it does seem to me as if during the first decade after
reunification, during the 1990s, it did seem as if Germany was converging with France and Britain on the
use of military force. That culminated in Germany's participation in the intervention in Kosovo. That was
a shift that everybody in the West, and in particular France and the UK and the US, welcomed. What's
happened in the decade since then, since the millennium, is Germany has kind of gone into reverse.
Opposition to the use of military force has hardened. It seems to me that even after the strategic shock of
the annexation of Crimea, it's very unlikely that there will be a significant increase in German defence
spending or in terms of German capabilities or the willingness to deploy.
Finally, is Germany essentially acting in a similar way to the US in the Latin American crisis? I think it's
right that this is essentially a relationship between creditors and debtors. It seems to me slightly different
from the US for a couple of reasons. Firstly, there is a single currency, so it does seem to me as if Germany
has different obligations towards other countries in a single currency that it's committed to join than the
US did in relation to Latin America.
But also, and this takes us back to the discussion about German hegemony, lots of the debate about
hegemony have been implicitly based on hegemonic stability theory, which is based largely on the model

8 Germany and Europe: Uncomfortable Leadership: Q&A

of what the US did in the 1950s. All of the things which the US did at that time, many of those things,
Germany is not doing now. For example, acting as a consumer of last resort. They are precisely the things
that Germany is refusing to do in the current crisis. So it does seem to me as if it's slightly different than
in the Latin America crisis.

Quentin Peel
But in a way, the nightmare of the eurozone crisis is precisely that it began in Greece, where the entire
German narrative

Hans Kundnani
Yes, it's a tragedy.

Quentin Peel
-- therefore becomes 'it's their fault'. Which it was. If it had started in Spain or somewhere else, that
argument couldn't have been made.

Hans Kundnani
Exactly. It's a tragedy that it started there. But I guess it's no coincidence that it started there either.

Quentin Peel
Stephen, start on Poland and just one thought to throw in on Poland. This is a personal thought and
nobody has said this to me in Berlin. I'm sort of convinced that Angela Merkel is being so tough on Crimea
because the thought of changing borders again is actually, to her, absolute no-go area, precisely because
there are other borders that might get changed.

Lord Green
Whether or not that's in her mind, I don't know, but very clearly the east European settlement was
extraordinarily painful in all sorts of ways. Events in 1945 and onwards, the whole postwar and Cold War
experience. Poland has emerged for the first time in a very long time as a stable, independent country.
Understandably nervous of its borders to the east and to the west. But I think there's some very
interesting things that have happened if we take a slightly longer-term perspective. Back in the 1950s,

9 Germany and Europe: Uncomfortable Leadership: Q&A

1960s, 1970s, even 1980s certainly still in the 1980s the Bundesvertrieben was still an important
political force within domestic German politics.

Quentin Peel
Just translate Bundesvertrieben.

Lord Green
The grouping of the 12 million Germans who were living (first in West Germany and then united
Germany) who had come from the lost eastern lands. They were an important political force. That's now
gone. There is no I wouldn't say no voice, there is probably an occasional voice but all but no voice for
revisiting the question of the Oder-Neisse line and East Prussia. This is a big step forward when you
consider the previous 700 years of east European history.
From Poland's point of view, the embedding in NATO as well as in the EU are cardinal to their existential
concerns. It's not at all surprising that with recent developments in the Ukraine, they should be focusing
again with a clearer eye on NATO. I don't doubt that what's true of Poland is even more true of the Baltic
states. If German money is flowing into some of those economies, as it certainly is both business money
but also property investment I think that is likely to be broadly welcomed for the sorts of reasons that
Hans has hinted at.
Do I think Poland can become a new France? I think that is to overestimate its potential for the next 25
years, at any rate. This is a country which in 1939 had an economy about the same size as that of Spain
and is now well behind Spain, never mind France. It's got a long way to go in terms of economic weight
and influence. As an aside, I think we're in danger of writing off France too much and too quickly. France
is still the second-largest eurozone economy and is not going to disappear into a black hole. So I think we
shouldn't get too carried away with that kind of shift. There is a shift in the centre of gravity from Paris to
Berlin, no question, but let's not overdo the point.
On security and defence, I don't know whether it is possible to envisage defence spending getting towards
the 2 per cent target. What I am clear about, and I essentially agree with Hans, is that the political
appetite or the domestic appetite among people generally for active military work has, if anything,
declined in recent years. By the way, it's declined in Britain and France too. So I think if anything, there's
probably a convergence in the general direction of being less likely to do it. One of the reasons why
Germany is clearly in the lead on the Ukrainian question is precisely because nobody really thinks there's
a military question involved in dealing with the Ukraine. There are other reasons, like its important
energy, it's next-door and its past history.

Hans Kundnani
But some NATO countries do see military means as being part of the solution. There has been this
disagreement between Germany and other countries in NATO about having a permanent NATO presence

10 Germany and Europe: Uncomfortable Leadership: Q&A

in the new member states. This is one of the things that caused anger in Poland. That was something that
Germany opposed. So obviously nobody is talking about putting boots on the ground in Ukraine, but
there is a difference between the UK in this case and Germany on the question of what role the military
means play in the response to Russia. In particular, do you need to take measures in terms of deterrence?

Lord Green
You may need to protect your airspace, as we've discovered over the Baltic states.

Quentin Peel
I think we're at a very fascinating tipping moment. A fascinating moment of transition, where in some
ways Germany is becoming more British and Britain is becoming more German: hesitant, not so keen, not
wanting to do it. It's a thought to leave with you. With great regret, I'm going to have to wind up this
debate. I would urge you once again to grab copies of the books if you want. There's a reception upstairs
afterwards. But I would like above all to thank our two speakers very much for giving you a taster of all
the riches that are in their books. Thank you both very much.