On March 21st (Euronity - The Antonym of Unity) I wrote about the increasing necessity of a quick bailout for Greece and the dangers for the European Union if they did not act decisively and cohesively.  They failed to provide that unified front quickly enough, and as a result the reputation and market measurement of the implied strength of the EU suffered badly.  This, I believe, has contributed to shaky market response to the massive trillion dollar bailout that the Union finally unveiled.  The apprehension from the markets is directly linked to the fact that Europe has never been, and may never be a unified continent.

This is where Germany comes into play.  They are the largest economy in Europe and are also looked to from others to provide a leadership role on political and economic policy.  Much as the United States attempts to play this role for the entire world (rightly or wrongly), Germany occupies this space for Europe.  There is plenty of reason for this.

Germany is the fifth largest economy and the second largest exporter in the world.  Their economic engine is efficient and robust, with some of the world’s most technologically advanced production of cars, machine tools, shipbuilding, textiles and basic materials.  Much of the growth of Europe is tied to that of the German economy.  For this, Europe can be grateful that Germany is a member.

However, the dependence is twofold, and this is where Germany is making a grave error.  They have become so inebriated with their own economic and political clout that they continually fail to recognize the fact that they depend on the other member states.  The majority of their imports come from countries in the EU, the same countries that will suffer from Germany’s indifference.  Their economy might be strong, but it is export dependent to a fault.  Without something like China’s Yuan peg, Germany has no way to artificially stimulate their exports.  There needs to be a change of mindset if the EU hopes to navigate this dire strait.

Compare, for a moment, Germany to the United States.  The United States carries many labels, including: greedy, fat, lazy, arrogant, power hungry, etc.  However, there is one thing they do well above all others: consume.  Growth is spurred around the world by rabid consumption of goods and services by American citizens.  Germany, on the other hand, has practices in place that make sure they limit domestic consumption and instead reward their citizens with national pride.  The two models provide a stark contrast.  The problem is that right now the EU needs Germany to move closer to the US model and distance itself from the conservative practices of the past.  If Germany took measures to decrease their export surplus and began to consume more goods, the entire EU would benefit.  The German economy would continue to be world class, and Germany’s consumers would be able to enjoy more consumption.  If Germany does not make this shift, as the healthiest and most able country to do so, the EU economic engine could sputter and stall.

It is time for Germany to realize their place in the bigger EU picture.  The have reaped the rewards of other countries’ excess through increased exports to those countries and the economic benefits those exports imply.  Now, they point the finger at the fiscal irresponsibility of those nations without acknowledging the benefits to Germany.  However much they may be right in those accusations is irrelevant.  What matters is that they move forward with a plan that will benefit Europe as a whole, not just Germany.  There is a fork in the road up ahead.  One leads to a slower than expected recovery and a less antagonistic Germany.  

The other road is bleaker.  It comes with a chance of worldwide double dip recession and a forever weakened European Union.  Germany has a chance to pick the right road.  It may not be the popular choice at home, but in the long term it is the right decision not only for the world, but for Germany’s citizens.  Hopefully, Timothy Geithner’s visit to Berlin today will help to knock loose their conservative economic coils and allow Germany to flex in the way that Europe so desperately needs.

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