In just a few short years, Germany transformed itself into a global powerhouse, confounding critics who once worried that it was in a downward spiral. Today Germany has diplomatic clout and economic powers that include:
- A strong economy and balanced budgets: Germany enjoys an enviable goods and services export market that constitutes 46% of GDP. The government there actually spends less money than it takes in
- Serious diplomatic muscle, gained from earning a reputation as an honest broker on a wide range of EU and global political issues
- A content population that enjoys one of the lowest unemployment rates in the EU, the highest EU per-capita income, a high savings rate and high satisfaction with their healthcare and judicial systems
To be sure, everything in Germany is not perfect. In 2016 Germans identified the country’s struggle to integrate refugees as the number one problem in their country. But Germany’s recent successes are in contrast to the less vigorous advancements in the rest of the European Union. For instance:
- The French economy has extremely low growth or none at all and suffers from outdated labor laws that reduce hiring and investment
- The Italian economy has extremely low growth at about 0.2%. Overall the Italian economy is almost 10% smaller than it was in 2008
- The Greek economy remains hobbled by the impact of excessive government spending.
So how did Germany go from EU laggard to EU leader? The answer, it turns out, has a few components:
- Recently the German economy has benefited enormously from low oil prices and a cheap euro, which have boosted exports
- Germany’s labor and management work together in an unusual and symbiotic structure that enables them to reform and modernize
Germans have very high personal savings rates that enable them to fund the rescues of profligate countries in the EU. Their rescue money, provided to countries like Greece, enables the German government to influence – if not dictate – austerity terms.
The country has already gone through the pains of austerity and has cut government spending to reduce social welfare costs
Germany has had good leadership under Chancellor Angela Merkel, who has held together diverse governing coalitions and has been credited with good diplomatic skills.
Leadership Can Be Lonely
In some ways, Germany’s new, oversized leadership position in the EU may be putting it at odds with the original concept of the the European Union, which was formed as a partnership among equals.
Despite a lack of leadership from other EU countries, some critics believe Germany is polarizing Europe, while others refer to the EU as “A Teutonic Union”, referring to Germany’s oversized influence. Still others say that Germany has already reached the limits of its influence and will have increasing difficulty in helping to stabilize the EU.
Germany’s strength today shows how even the most economically troubled countries can move forward with the right reforms, good leadership and a bit of luck.