A Troubling Week for Germany

This week’s Geopolitical Pulse is written by Lili Bayer.

This has been a difficult week for Germany. In order to preserve its security and protect its export-led economy, the country relies heavily on the European Union. However, Berlin is facing a multitude of interlocking crises that are contributing to the fragmentation of Europe. This week, Germany had to contend with a series of challenges emanating from Syria, Turkey, the Balkans and Central Europe, as more worrying signs emerged about the state of its own economy.
 
The summit between the European Union and Turkey early this week underlined that Germany is unable to negotiate a comprehensive solution to the refugee crisis. The summit did not end with an official final agreement and leaders will meet again later this month. However, more meetings will not lead to a consensus among the Europeans, who are bitterly divided on how to stop the flow of refugees northward and on the distribution of refugees among EU member states. In addition, more summits will not shift the situation on the ground in Syria, which is the driving factor behind the refugee flows. As Dr. George Friedman explained on the eve of the ceasefire, the agreement will not result in a strong alliance among diverse rebel groups. And indeed, since the cessation of hostilities formally came into effect on Feb. 27, some fighting and airstrikes have continued. Perhaps most important, even if a deal is reached with Turkey, and even if the EU agrees to provide the Turks with several billions of euros in aid, Turkey’s ability to stop the exodus from Syria is limited without sending Turkish troops into Syrian territory. The EU-Turkey talks are a negotiation where neither side is truly willing and able to deliver on its promises.
 
The decision of Western Balkan countries, as well as Austria, to close their borders to refugees this week also signaled that Germany’s position is weakening. Historically, the Balkan Peninsula has been an area where Russian, Ottoman and European interests clashed. In 2014, German Chancellor Angela Merkel publicly raised concerns about Russian influence in the Balkans, highlighting the strategic importance of this buffer area for Berlin. Germany and other EU countries have used the possibility of EU membership, and especially the funding prospective members receive, to build relationships in the region. Serbia and Macedonia’s move this week to close their borders, along with EU members Austria, Slovenia and Croatia, shows that EU membership and Berlin’s approval are no longer priorities for Serbian and Macedonian decision-makers. While in the past, the promise of EU funding and integration was a powerful tool in this region, Europe is now becoming less attractive, and Balkan governments have grown less inclined to cooperate with Berlin on refugee policies. At the same time, Germany’s declining position in the Balkans could give Moscow an opening to exert more influence in the region.
 
Germany’s position is also eroding in another, critical buffer zone: Central Europe. Trapped between Russia and Europe, this region has historically been contested between east and west. Poland, Hungary, Slovakia and the Czech Republic have all recently clashed with both Berlin and Brussels, but not only over refugee policies. Poland’s constitutional crisis intensified this week, and the new government in Warsaw is locked in a dispute with the European Commission over rule of law issues. On Saturday, Slovakia held an election where parties from across the political spectrum, including the ruling Direction-Social Democracy (Smer-SD) party, used nationalist rhetoric to appeal to voters. The extreme-right People’s Party-Our Slovakia entered parliament for the first time, winning 8 percent of the popular vote. The nationalist Slovak National Party took about 8.6 percent of the vote. The results signal that Europe’s crisis is fueling a rise in nationalist and anti-European sentiments. Disputes with the EU, and at times the decisions of Central European leaders to reject European policies, indicate that Germany’s ability to shape the decision-making of Central European states when it comes to both EU policies and internal matters is waning.
 
Finally, this week Germany had to contend with mixed news for its economy. Layoffs at Siemens and the European Central Bank’s (ECB) decision to push interest rates even lower highlighted both Germany’s economic strengths and deep vulnerabilities. In theory, the ECB’s move to lower interest rates should contribute to growth, while a relatively weak euro should help make German exports competitive. Nevertheless, as we outlined yesterday, factors such as a weaker euro and strong domestic consumption may provide some protection for the German economy but do not address the country’s underlying economic vulnerability: its reliance on exports. Exports make up the equivalent of about 45 percent of Germany’s GDP. On March 9, Siemens announced that the company will cut 2,000 jobs in Germany, citing plunging demand in raw materials markets and a significant intensification of competition. The company’s decision signals that China’s slowdown and the exporters’ crisis are not only negatively impacting Germany’s export volumes, but are also starting to directly affect German jobs, and thus German consumers.
 
This week, we saw Berlin grapple with a growing list of interrelated challenges. Despite its position as the largest economy in Europe and the leading political power on the continent, Germany is finding itself unable to effectively address Europe’s crises, and is struggling to maintain its influence in some regions. At the same time, Germany’s economic vulnerabilities are coming to the fore. We can expect many more challenging weeks for Berlin in the months ahead.