Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Germany’s fortunes are now intimately linked to a circle of countries that have become economic colonies (©PHOTODISC)
Germany’s fortunes are now intimately linked to a circle of countries that have become economic colonies (©PHOTODISC)

Doug Saunders

Life in the German empire Add to ...

Berlin today does not look or feel like an imperial centre. In fact, it does everything it can to be the precise opposite, a living monument to the horrors and follies of attempting to rule the world, its well-maintained bombsites, bunkers and wall fragments a permanent reminder of history's two bloodiest attempts, from the Reichstag and then the Kremlin, to expand control beyond one's own borders.

So you might understand why Germans, and their leaders, have been slow and wary to accept that their fortunes are now intimately linked to a circle of countries that have become economic colonies, and that this responsibility carries very large-scale, and non-optional, costs and responsibilities for the German taxpayer.

They don't like to think of it that way. When it became apparent this week that Berlin will have to contribute at least $32-billion toward a Greek rescue plan over the next three years, the front page of Bild, the flamboyant Berlin tabloid that represents a window into the country's unguarded id, went apoplectic: "Billions for Greece: What's In It For Us?" it asked in three-inch-high type.

Chancellor Angela Merkel had hoped that the big cash rescue could be put aside until after the May 9 regional elections in North Rhine-Westphalia, where news of a big foreign payout could hurt her party's fortunes.

But the Greek crisis, and the mounting Portuguese and possibly Spanish and Italian crises, are, at their heart, and in their origin, German crises.

Ms. Merkel realized, almost too late, that letting the rescue wait will only cost Germany more money and possibly destroy its institutions, so on Thursday she took action and primed the pumps for a bailout. Greece and its neighbours, she acknowledged, are not just nearby countries; they are umbilically linked to Germany, and their fates had become inseparable.

To understand this, you need to visit the residential shopping streets of southern Europe. What you will see is German: The food in the supermarkets, the electronics shops, the clothing outlets and a great many of the cars on the road, to say nothing of the olive presses, sewage-treatment plants and fishing boats. The banks used by consumers are often branches of German chains, and their loans have financed huge building booms.

Germany is the world's second-largest exporter, ahead of the United States and exceeded only by China, and its largest markets are its European neighbours. These countries are net importers: They meet most of their needs by buying things from other countries, especially Germany, which has used its size and wealth to build efficiencies, and economies of scale, that make its exports irresistibly cheap.

This leads to a balance-of-payments deficit: These importing countries have more money flowing out of their borders than they have coming in - for Greece, an amount equivalent to a tenth of the entire economy - and Germany has a surplus, with piles of it stacking up.

When other countries have balance-of-payments deficits, they can escape by devaluing their currencies and slashing the exchange rate. This, in essence, is what the United States is doing to ease its $2-trillion imbalance with China. But Greece and Germany share a currency, the euro, so that option isn't possible. And in a common-currency system, a balance-of-payments deficit becomes a fiscal deficit: It turns into government debt.

Money cannot sit still, and nature abhors a vacuum, so German banks disposed of those heaps of surplus export-payment cash by lending it to companies, especially property developers, in those same countries at low interest rates. And they lent it to their governments, too, to fill their need for missing cash, which would in turn be spent on more German goods and services.

Through this constantly repeated cycle of exports, payments, surpluses and then loans to southern Europe, Berlin became an imperial centre, tying its southern neighbours to dependencies on debt and cheap exported goods. Switching sides was impossible: Unlike China, Greece didn't have an undervalued currency in which to pay its workers and sell its goods, so it had no hope of developing a strong export sector. Germany had got the jump, by developing high-productivity big industries that its customer states could never match.

Ms. Merkel talked yesterday of using her country's patronage to cure Greece of its miscreant ways. "We will not shirk our responsibility," she said. "But the precondition is that Greece accepts an exacting program which will allow the restoration of market confidence in Greece."

That's a start. But as it stands, a complete rescue will only return Greece and its neighbours to the status quo ante: Dependency on German exports, German debt, German rescues. To end the cycle, Germany will need to dig in and help these countries develop real export economies. That's a lot more expensive, and a lot more complicated - but that's life in an empire.

Report Typo/Error

Follow us on Twitter: @GlobeDebate

Next story




Most popular videos »

More from The Globe and Mail

Most popular