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Germany in a new century

A Note by the Director (Ditchley 2004/07)
 
11-13 June 2004
Over a beautiful summer weekend in June, appropriately as the European elections were in progress, we looked at the future of Germany in a new century.  We were helped by the presence of a range of experts on Germany’s economic, political and security policies and by the chairmanship of one of the leading historians of Germany in our time.  Before looking in detail at Germany’s present and possible future policies we considered the overall position of its domestic reform programme and its Foreign and Security goals. 
The comment was made that, notwithstanding the cultural and historical differences between the two countries, some in Germany appeared to hope for a Mrs Thatcher figure to push through some long-overdue and necessary domestic reforms.  For some 16 years there had been no real attempt to tackle the problems which had become more serious and had been added to by the transfer of 4% GDP annually from West to East Germany following reunification.  A wide-ranging reform plan, Agenda 2010, had now been put in place and a start had been made.  Paying 10 Euros for a visit to the doctor was one of a number of ways, it was claimed, in which ordinary people had been made aware that these changes affected them.  On the political side, the comment was made, that reform of Federalism would require reform of the upper chamber, the Bundesrat, together with a clearer realignment of decision making powers with those for raising revenue.
In the economic area, attention was drawn to the slow decline of GDP growth in Germany.  From the nineteen sixties to the nineties growth had averaged 3.2%, from 1991-95 it had slowed to  2% and from 2000 to 2005 it had dropped to 1%.  The decline had gone on for some time and was now becoming serious.  At this level German public finances would not be sustainable in the long term.  It was also claimed that while the 2010 programme had many sensible elements such as labour-market flexibility, health care reform etc, it did not deal directly with the problem of growth and did not give a clear and simple message to the electorate.  This might be to set a target of 2% annual growth and sustainable public finances.  Those who supported this argued that the welfare state had replaced the feudal state and currently in Germany the welfare provision was not sustainable.  There needed to be more flexibility in the economy, less taxes and less unions.  Those who agreed that the message was not clear argued that it was also difficult to decide who was the real Mr Schroeder;  was he a committed reformer, a trimmer or a tactician?  On the other hand it was claimed that the theme of reform had been non-stop in recent years.  There was not a single element in German society which was not groping for reform.  Was growth the real message?  Did growth equate with a better life.  How would any growth be divided up.  There was a low tolerance in Germany for wide disparities in income.  The underlying solidarity which this reflected had helped in the assimilation of 17 million East Germans.  While it was accepted that growth might not be a perfect measure it stood in contrast to the present lack of a national target and national leadership.
In looking at Germany’s role in the foreign and security fields it was hoped that it would develop a greater sense that world events and issues were of direct relevance to Germany which, in turn, might act rather than react to them.  Internal reform appeared to be absorbing its energies and attention.  Notwithstanding that, there seemed to be wide agreement on the centrality of Germany to many issues.  Germany’s current priorities included the building and progress of EU integration, we were told.  This was in response to the “profound logic of EU integration”.  An important aspect of this would be for Germany to regain the trust and support of the smaller member states.  This was set beside what was thought to be German reliance on the Franco-German motor for integration in the EU.  If there was more integration, it would give Germany more power.  German federalism would combine with EU federalism.
Transatlantic relations and events in Iraq came in for close scrutiny.  It was suggested that the USA could no longer rely on an emotional acceptance of their leading role.  But, maintained others, Transatlantic relations remained a key for German security policy.  Serious efforts had been made by Germany to repair the breach caused by the disagreement over Iraq.  It was hoped that the US would reciprocate.  Some thought that Germany could play a central role in the transatlantic relationship between the differing positions of France and Britain towards the US.
Germany’s role in Europe was thought to be at the top of its priorities. A British participant asked that Germany should be open about the repercussions of a British “No” in a referendum on a constitutional treaty.  The British public should be aware of this before they voted.  Another participant referred to what were claimed to be confusing statements about the future of the EU by Foreign Minister Fischer.  It was also suggested that German MPs needed a wider vision of the world.  Those more critical of German foreign policy thought there had been a subjective crisis of confidence.  It was not easy to say what Germany really wanted.  But its priorities appeared to be local.  This was disputed.  Germany had indeed risen to the new challenges.  More than 8,000 German troops were currently deployed abroad on peacekeeping missions.  Germany had taken the lead in convening the Afghanistan Peace Conference etc.  Recent trilateral cooperation between Germany, France and Britain on Iran was mentioned but was claimed to be no lasting substitute for institutional reform.
In looking in more detail at domestic political and economic reform we asked ourselves about the direction of change and whether there was anything in the German tradition  or institutions which prevented it.  There was criticism of the alleged lack of leadership from the present German Government and its failure to sustain a coherent message on the necessary reforms.  Some prominent policy U-turns in the face of public opposition had not helped.  Unification had also created a heavy burden as a result of financing massive transfers primarily through social security contributions.  The “German model” was thought to be near exhaustion.  There was a general consensus in our discussion on what needed to be done.  Society and the economy needed to be set free.  The problem lay in turning that aspiration into reality.  Few German MPs had business or economic experience
In terms of economic reform it was said the German people were aware of their decline in economic terms relative to some of their EU partners and were not happy about it.  If a properly worked out policy for economic reform was put to the people they would support it.  The CDU/CSU would, it was claimed, put forward such a policy in the run up to the 2006 Federal elections, having recently solved the leadership question in their coalition.  Their views would be in tune with the liberal market line of the FDP at their recent party conference at Dresden.  Such a coalition, if elected, would also enjoy a two thirds majority in the Bundesrat and would, therefore, be in a position for a year or so, to turn their policies into legislation.  This “window of opportunity” in 2006 was referred to frequently.  In terms of specific reforms a preference appeared to exist for micro rather than macro measures.  Those mentioned included more flexible labour markets, lowering start up costs for new businesses, improving women’s labour-market participation through better childcare etc.  There was also a call for serious reform of the secondary and tertiary educational systems to ensure that youthful energy and entrepreneurial skills were not lost through long years at university.  At the end of all this we asked ourselves what might emerge.  One participant expressed strong doubt that it would resemble the pure theory of a liberal economy.  It was more likely to be a German version, and the question would then be as to whether this would prove a second best alternative or a viable way of coping with the challenges of global competition in a manner which took account of German cultural and social preferences.
In looking at reform of the political institutions there was a belief that the system of checks and balances which had been put in place in 1949 had successfully achieved its purpose.  It now needed modifying to take account of changed circumstances.  It was not often appreciated in the UK that Schroeder had gained a higher share of the vote in his general election than Blair had in Britain.  Given the current difference in the political composition of the Bundestag and Bundesrat, the lack of concentration of power necessary for legislation to pass, was particularly glaring.  In addition the habit of appealing to the Constitutional Court against unpopular legislation also served to slow reform.  The patchwork of coalitions at Land, Bundestag and Bundersat level also complicated matters.  The result had become Government by Commissions, stated one participant.  Reforms suggested included a change in Bundesrat voting procedures so that an abstention would no longer count as a negative vote and a synchronisation of Länder elections.  Some thought the resistance to change could, above all, be laid at the door of the political class.  Others accepted that changes to a system which was so powerfully reinforced by the vested interests of many of the parties in the cosy status-quo, would always be slow and that in some quarters there was a feeling of reform exhaustion.
At the outset of our discussions of Germany’s role in the EU, we were told that Germany’s attitude had changed over the years.  Initially Germany had seen the EU as a way of being accepted back into the international community.  Then there had been a period in which Germany had benefited both politically and economically.  Now Germany saw the EU as a strategic opportunity through which Europe could play a role in world events.  Doubts were, however, expressed about public attitudes in Germany towards the EU.  The last occasion on which there had been a real public debate had been over the merits of Ostpolitik.  Now, while the whole political class might agree on the EU, the people were less interested.  The expected low turn-out in the European elections, the relative indifference to Enlargement and the Constitutional Treaty were all evidence of this.  Responses to the question of what would happen if the Constitutional Treaty failed, indicated either ignorance, indifference or apathy.  There appeared to be a lack of clarity from the political leadership and the emergence of different attitudes in different generations.  A word of defence was given to Herr Fischer’s various speeches.  The Humboldt integrationist speech had been given before 9/11, his later views reflected the art of the possible.  In the same way, Germany accepted the present version of the Constitutional Treaty as the best obtainable in the circumstances.
We discussed the EU’s Common Foreign and Security Policy where, it was asserted, Europe had moved forward substantially in the last three years of working together in the Balkans.  Germany was thought to be interested in the strategic use of “soft power” (economics, culture, values) as part of the CFSP and would prefer “Europe” rather than Germany to play a global role.  A voice from the US encouraged the EU, and Germany, to develop its military (hard-power) capabilities.  The rhetoric need not be challenging to the US or NATO, but the reality was that if the EU wished to be taken seriously in Washington and to have a seat at the decision-making table, it had to bring some serious military assets to the game.  Even Habermas had argued in Germany for European spending on defence.
Germany’s relation with the UK, with France and as part of the tri-lateral was also discussed.  Disappointment was frankly expressed about the UK’s role and publicly expressed attitude to the EU.  The referendum, which a British participant claimed was currently unwinnable, was the latest example.  Germany would welcome a leadership role by Britain in the EU, particularly in the defence field.  A British participant speculated on the probable decline in sympathy for Britain in the EU over issues like the Euro.  The German relationship with France was seen as important in giving an impetus to building an overall European consensus.  But wider coalition building among the smaller and new member states was also seen as necessary.  Trilateralism, as recently manifested in Iran, was also seen as useful, and defended against the charge of divisiveness within the EU, as being an expression of the art of the possible in present circumstances.
In looking at Germany’s attitude to the Stability and Growth pact, at least one German participant expressed the view that it had been “a mistake” in its elaboration.  Pragmatism was now needed to improve the quality of economic policy coordination in the monetary union.  Harmonisation of tax rates was thought to be undesirable but there was support for harmonising the tax base.  Finally, Turkish membership of the EU was thought to be a major issue, in particular for Germany.  While some doubts were expressed about Turkey’s suitability, it was thought insincere and counter-productive to back away now from a process we had encouraged since 1964.  One participant argued that there was an urgent need for Germany to attract young entrepreneurial workers from Turkey and to build a relationship with a part of the world on which Europe would continue to depend for its fossil fuel for at least the next twenty to thirty years.
Germany’s global aspirations were also examined.  It was thought that Germany’s economic performance had affected its Foreign Policy performance.  But Germany was now too big to take a neutral or disinterested line – “an elephant hiding behind a potted palm”.  There had, however, been major steps forward in defining Germany’s role, witness the dispatch of troops to various parts of the world.  It was even thought that Germany would be ready for pre-emptive action, but only if that action fitted into a formal legal framework and was subject to prior agreement.  But, in general, defence was not a subject which excited much interest.  Only about five members of the Bundestag were thought to care seriously about defence issues.  There were, however, global issues which did arouse interest in Germany.  The environment, and the Kyoto Treaty were among them and brought Germany up against US indifference.  North/South issues were not much debated in Germany although the Common Agricultural Policy came in for a good deal of criticism at the conference, principally on the grounds that it deprived developing countries of the means to make their own way and take their own decisions.
In relation to the major strategic issues such as global terrorism, Iraq, the Middle East peace process etc, there was a feeling that Germany’s strong preference was to operate through the EU or NATO and that Germany’s record was underrated.  In Afghanistan reference was made to German-invented provincial reconstruction teams which had worked well.  But there remained a general reluctance both in Germany, as well as at our conference, to push for a new strategy, to discuss in detail European Defence and Security Policy or a new idea for NATO, despite the imminence of the Istanbul Summit.  Political leaders had let the D-Day commemorations, the G8 Summit, the European Council (and probably the NATO summit) go by without communicating a vision of the new opportunities and challenges facing the people.
It emerged from our discussions that German interest in the UN Security Council had been reawakened and permanent German membership now had the support of the Chancellor.  Iraq had shown that the UNSC really mattered and for both ideological and status reasons Germany wished to be present at the UNSC table.  Others expressed scepticism about the imminence of UNSC reform and even greater doubts about the likelihood of a third European permanent member.  The suggestion was made that, like France, the British might accept a German diplomat into their UN Delegation.
In a final look back at the ground we had covered a number of disparate points were made.  Some years ago when Mrs Thatcher had convened a meeting at Chequers to consider German reunification, the concern then had been about an overpowerful Germany.  That was not the case now.  Germany was a country in the centre of Europe surrounded for the first time by friendly neighbours.  In some ways the EU had acted as a warm bath when Germany really needed a cold shower of reality.  In looking for change it was possible that we had underplayed the sources of dynamism which could come from a generational change and from immigration.  In terms of Europe’s transatlantic relationship much might rest on Germany.  In relation to the centrality of Germany it was not evident that Germans generally understood that this also meant sharing a larger proportion of the risk.  The US Administration was no longer unqualified in its support for EU integration.  Coalitions of the willing were the preferred solution.  There appeared not to be any sense of urgency about some of the global problems which would continue to confront Germany and its partners and allies.  In relation to Germany’s partnership with France, one participant expressed the view that a critical moment had now been reached.  France and Germany had to decide whether they wished to proceed on their own without the UK.  They were urged to consider very carefully before taking this step.  It could significantly increase the likelihood of the US adopting a divide and rule policy towards Europe.  Germany’s role in this decision was seen as critical.  On the other hand, the UK was described as sleepwalking towards major decisions in relation not only to Europe but also towards the USA which would arise from a decision in the referendum on the Constitutional Treaty.  There appeared to be little appreciation in Britain of the issues which would be at stake.
In a final historical look, we were told that the last fifty or so years had been an enormous success story for Germany and for Europe.  It was good to see the centrality of Germany in a European context being acknowledged.  Perhaps our conference had concentrated a little too much on Marx and not enough on de Tocqueville.  The moral and psychological questions were of great importance.  The demographic realities were also significant.
I am grateful to all those who attended for the frank and open discussion:  to our Chairman for adding the necessary historical perspective;  to Ms Mitsuko Uchida for adding some beautiful music, essential to any proper consideration of Germany;  and to the Minister for Europe, Dr Denis MacShane, for addressing us on Saturday evening.  And, on a personal note, to the absence of those interminable debates on the Finalité Européenne or Endziel which were so much part of the former discussions of Germany and Europe.
This Note reflects the Director’s personal impressions of the conference.  No participant is in any way committed to its content or expression.
 
 
PARTICIPANTS
 
Chairman     : Professor Fritz Stern
University Professor Emeritus, Columbia University;  formerly Senior Advisor to Ambassador Richard Holbrooke;  Author
 
CANADA
Ambassador Marie Bernard-Meunier
Canadian Ambassador to Germany;  formerly:  Ambassador to the Netherlands (1996-2000);  Ambassador to UNESCO (1989-92)
Professor Herbert Grubel
Emeritus Professor of Economics, Simon Fraser University;  Senior Fellow, Fraser Institute, Vancouver;  Member of Parliament (Reform Party) for Capiland – Hove Sound (1993-97)
Professor David G Halund
Sir Edward Peacock Professor of Political Studies, Queen’s University, Kingston, Ontario;  Co-Editor, International Journal (2003-);  Director, International Relations, Queens University (1996-2002)
 
FRANCE
Mr Gilles Andréani
Head of Policy Planning Staff, French Foreign Ministry;  Senior Fellow, International Strategic Affairs, International Institute for Strategic Studies (1999-)
Professor Anne Marie Le Gloannec
Professor, CERI (Centre d’Etudes et de Recherches Internationales) (1977-);  formerly:  Research Fellow, Centre Marc Block, Berlin (1997-2003);  Deputy Director, Centre Marc Block, Berlin (1997-2001)
 
GERMANY
Dr Christoph Bertram
Director, Foundation for Science and Policy (1998-);  formerly:  Director, International Institute for Strategic Studies, London (1974-82);  Senior Editor, “Die Zeit”, Hamburg
Mr Wilhelm Bonse-Geuking
CEO, Deutsche BP AG, Group Vice President Europe
Dr Andreas Busch
University Lecturer, Comparative European Politics;  Course Director, European Politics and Society, Department of Politics and International Relations, University of Oxford  
Mr Martin Heipertz
Researcher, Max Planck Institute for the Study of Societies, Köln;  formerly:  Advisor to Belgian Minister of Finance and Government of Hessen
Dr Malte Herwig
Field Chair and University Lecturer in German Studies , Oxford Brookes University (2003-)
Mr Tom Kielinger OBE OM
UK correspondent Die Welt      since 1998;  Washington correspondent (1977-85);  editor-in-chief Rheinischer Merkur (1985-1994)
Ambassador Thomas Matussek
Ambassador of the Federal Republic of Germany to the Court of St James’s (2002-);  formerly:  Director-General, Political Department, Foreign Office, Berlin (1999);  A Governor and Member of the Council of Management, The Ditchley Foundation
Ms Anna Menge
Doctoral Candidate in Modern History and Senior Scholar, Merton College, Oxford (2003-)
Mrs Ursula Mogg MdB
Member of the German Bundestag since 1994.  Member of the Defence Committee and Foreign Affairs Committee since 1998.  Member of the NATO Parliamentary Assembly
Mr Wolfgang Munchau
Associate Editor, Financial Times
Major General Peter Nagel
Assistant Chief of Staff, Politico-Military Affairs and Arms Control;  Federal Ministry of Defence, Berlin (2003-);  Defence Attaché, Moscow (1999-2002);  Defence Attaché, Madrid (1992-95)
Professor Michael Stürmer
Chief Correspondent, Die Welt and Welt am Sonntag (1998-);  Professor of Medieval and Modern History, Friedrich-Alexander-Universität Erlangen-Nürnberg (1973-)
Mr Kurt Viermetz
Chairman Hypo Real Estate Holding;  Vice-Chairman, J P Morgan & Co Inc, New York
Mr Gebhardt von Moltke
Chairman, Deutsch-Britische Gesellschaft, Berlin;  formerly:  German Foreign Service (1968-2003);  Ambassador/Permanent Representative of Germany, NATO Council, Brussels (1999-2003);  Ambassador to the United Kingdom (1997-99)
Professor Dr Norbert Walter
Chief Economist Deutsche Bank Group and CEO Deutsche Bank Research;  Professor and Director at Kiel Institute for World Economics

GERMANY/USA
Count Riprand Arco
President, American Asset Corporation
UNITED KINGDOM
Lord Aldington
Chairman, Deutsche Bank, London,  Council of the British German Chamber of Commerce
Mr Robert Cooper CMG MVO
Director General, General Secretariat, External and Politico-Military Affairs, Council of the European Union;  formerly:  Head, Defence and Overseas Secretariat, Cabinet Office (1999-2001);  A Governor, The Ditchley Foundation
The Lord Dahrendorf KBE FBA
Warden, St Antony’s College, Oxford (1987-97);  London School of Economics:  Director (1974-84);  Governor (1986-);  author;  a Governor, The Ditchley Foundation
Mr Quentin Davies MP
Member of Parliament (Conservative);  Grantham and Stamford (1997-) (Stamford and Spalding 1987-97);  Shadow Secretary of State for Northern Ireland and Member of the Shadow Cabinet (2001-2003)
The Lord Garden KCB
Visiting Professor, Centre for Defence Studies, Kings College, London (2000-),Director, Royal Institute of International Affairs (1997-98);  Air Marshall Commandant, Royal College of Defence Studies (1994-95);  Assistant Chief of the Defence Staff (Programmes) (1992-94)
Mr Timothy Garton Ash CMG
Director, European Studies Centre, St Antony’s College, Oxford;  a Governor, The Ditchley Foundation
Ms Heather Grabbe
Deputy Director, Centre for European Reform (2000-);  Associate Fellow, European Institute, LSE (2004‑);  formerly:  Research Fellow, Royal Institute of International Affairs (1996-97);  Member of Council, Royal Institute of International Affairs;  Member, British Königswinter Committee
Sir Jeremy Greenstock GCMG
Director, The Ditchley Foundation (Designate – August 2004);  formerly:  HM Diplomatic Service (1969-2004);  UK Special Representative for Iraq (2003-04);  Ambassador and UK Permanent Representative to the United Nations, New York (1998-2003)
Mr Andrew Levi
Head, Aviation, Maritime and Energy Department, FCO (2003-);  Deputy Head of Eastern Adriatic Department, European Commission in Brussels (1996-98)
Dr Edwina Moreton OBE
Diplomatic Editor and Deputy Foreign Editor, The Economist
Dame Pauline Neville-Jones (DCMG)
Chairman QinetiQ;  International Governor, BBC;  HM Diplomatic Service (1963-96);  Head of Planning Staff, FCO (1983-87;  Deputy Secretary, Cabinet Office (1991-94);  Deputy Under Secretary of State and Political Director, FCO (1994-96).  A Governor, the Ditchley Foundation
Ms Jackie Newbury
Director Natwest London, Tokyo;  Head of Sales Deutsche Bank London, Frankfurt;  Head of Sales Julius Baer, London;  MD Newbury Financial Consultancy Ltd (2000-).  Königswinter Steering Committee
Professor Dr William Paterson OBE FRSE AC SS
Director, Institute for German Studies, Birmingham University
Rt Hon Joyce Quin MP
Member of Parliament (Labour) Gateshead East and Washington West (1997-);  formerly:  Minister of State, Foreign & Commonwealth Office;  Minister of State, Home Office
Sir Peter Torry KCMG
British Ambassador to Germany (2003-);  formerly:  British Ambassador to Spain
UNITED KINGDOM/UNITED STATES OF AMERICA
The Honorable Barbara S Thomas
Executive Chairman, Eversheds;  Executive Chairman Private Equity Investor Plc;  Deputy Chairman,  Friend’s Provident Plc;  Deputy Chairman, Financial Reporting Council and Acting Chairman, United Kingdom Atomic Energy Authority;  A Governor, The Ditchley Foundation
UNITED STATES OF AMERICA
Mr John Bauman
Minister Counsellor Political Affairs, Embassy of the United States of America, Berlin
Mr Charles S Maier
Professor, Minda de Gunzburg Center for European Studies, Harvard University
Ms Amity Shlaes
Senior Columnist, Financial Times;  Author, “Germany;  The Empire Within”.
Mr Garrick Utley
President, Levin Graduate Institute of International Relations and Commerce, The State University of New York (2003-);  Chairman, American Council on Germany (1998-)