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Economic Success Transforms Germany Into Europe's Political Powerhouse

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STEVE INSKEEP, HOST:

Europe has survived one financial crisis after another. A bailout of Cyprus is only the latest, following catastrophes from Ireland to Greece and beyond. The solutions to each of these disasters have varied widely, but they share one common factor - one country that provides much of the money for bailouts, and ends up dictating many of the terms.

Zanny Minton Beddoes, economics editor at The Economist, has been visiting that country, and she spoke with us for today's Business Bottom Line.

Would you remind us why it is that Germany ends up in the center of crisis after crisis after crisis, in Europe?

ZANNY MINTON BEDDOES: Because Germany is essentially, the paymaster. Germany is the biggest, the most successful economy; the one that ultimately has the fiscal capacity to support the others. And Germany is gradually becoming the political powerhouse of Europe. And for much of its post-war history, Germany was a - economic success story but a political pygmy. Now...

INSKEEP: Trying to be very modest.

BEDDOES: Absolutely, given...

INSKEEP: It didn't want to repeat the failures of World War II.

BEDDOES: Of course. And now, thanks to the fact that Germany survived the financial crisis much better than many other economies, Germany is the only big economy in a position, really, to support the others. And what Germany wants, essentially, sets the parameters for what each, individual euro rescue will be like. And Angela Merkel is, by far, the most powerful politician in the euro area.

INSKEEP: She's the chancellor of Germany; she has been, for years. She's up for re-election. So when she looks at one crisis after another, what does she want?

BEDDOES: She has two time horizons. Her short-term time horizon is to get re-elected in September. And that demands, first of all, maintaining the aura of competent stewardship that she has developed in Germany. She is seen as someone who has protected Germans from the euro crisis. And Germans save huge amounts; they're very focused on financial security and financial stability. And the main concern about the euro crisis, amongst Germans, is that in the end, they will pay - and they will lose their financial security.

INSKEEP: Mm-hmm.

BEDDOES: And her second time horizon is a longer-term one, which is that of following what she thinks is the best route towards ensuring that Europe as a whole - the euro area - is competitive, and can succeed in the 21st century economy.

There's a phrase that Angela Merkel likes to repeat, again and again. She points out that Europe accounts for about 7 percent of the world's population, around 25 percent of the world's GDP. But it finances about 50 percent of the world's social spending; which means that its governments are incredibly generous, in terms of social spending, compared to others around the world.

INSKEEP: Paying for the elderly, paying for health care, things like that.

BEDDOES: Absolutely. And she takes that to be a very clear indication of how Europe needs, essentially, to buck up and become more competitive.

INSKEEP: Meaning that Europe needs to make more money, or Europe needs to spend less on its people?

BEDDOES: Both. Both.

INSKEEP: Now it's interesting that you talk about Germany dominating Europe because I'm thinking about the United States, the way that it has a giant place in the world and consequently, many people deeply resent the United States for acting self-righteous; for telling other people what to do. Are people getting to really resent Germany, at this point?

BEDDOES: Yes, they are. If you look at the popular press in Greece, even in Cyprus, you will see pictures of Angela Merkel with swastikas or a mustache - I mean, that there are lots of historical...

INSKEEP: A Hitler mustache.

BEDDOES: ...caricatures which can be made quite easily about Germany, and which the U.S. - there's no equivalent to. And the question, to me, is whether Germany itself sees the need to lead, in setting up a new architecture of Europe. It is very hard for Germans to lead in an overt way because of all these overtones that come the minute Germany very obviously pushes forward.

INSKEEP: Are Europeans broadly concerned about losing their position of leadership in the world?

BEDDOES: I think Angela Merkel is concerned about it; and I think the Germans are very focused on this need for competitiveness and the need for Europe, as a whole, to reform. More broadly, I think Europeans are very focused on their crisis right now, and they're very focused on the right way to deal with it. So there hasn't been an awful lot of breathing room to kind of stand back and think about Europe's position in the bigger picture. But I think that's what motivates her. And I think that there's a very clear sense she has that Europe needs to kind of shake up, and buckle up, and therefore, do a lot of reforms in order to maintain its position within the global economy.

INSKEEP: Zanny Minton Beddoes, economics editor of The Economist. Thanks for coming by.

BEDDOES: Thank you.

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