“The EU sometimes reminds me of the love life of the elephant: a lot of dust is raised, then you have to wait 22 months and such a small thing comes out!”

This is what an influential and staunchly pro-European German public figure, Die Zeit editor-at-large Theo Sommer, said to me and others a couple of weeks ago, after a discussion about the future of the eurozone and Germany’s options. It followed a talk with Finance Minister Wolfgang Schäuble. The minister was very much into careful planning for the upbringing, education and even pension fund of the elephant cub! Except meanwhile, there was a strong possibility that the mother herself would suffer a miscarriage, way before the 22 months were over.

Thou shalt procrastinate!

Angela Merkel is not the first EU leader who seems to belong to a religious sect whose sacred book incorporates an 11th commandment: Thou shalt procrastinate! This belief has notoriously strangled or sunk several important EU initiatives, from the failed Lisbon Strategy to the ailing EU Neighbourhood Policy. Unlike her predecessor Gerhard Schröder, she has never come across as a visionary making bold decisions that would cause her country to leap forward, but rather as a cautious bureaucrat, taking every progress carefully in its stride. Same now. Opponents of her views on Europe (such as European Parliament president Martin Schulz) argue that she’s getting bogged down in the theory of long-term institutional reform for the future of the Union, while not doing crisis management fast enough to save the present. “To me it seems akin to sitting in an airplane that’s experiencing serious turbulence, while in the cockpit, they’re debating improvements to the engines. Of course we’re also dealing with a systemic political crisis, but that doesn’t help us with the turbulence we’re experiencing at the moment”, says Schulz for Der Spiegel. However, for once, this may not be a losing strategy.

For Germany, the eurozone rescue is about the economy, stupid, but it’s more about politics and geopolitics and the future of the ship that the (lady-) captain in Berlin will be steering on global waters.

Wolfgang Schäuble’s daughter is a lawyer in Hamburg and roughly speaking, she is in the business of buying ships in China, where she travels frequently. Her father too looks not only at Germany’s interests in Europe, but also at its position globally, as a major international player, which it is. And he sees that it risks losing to Asian and US competition, unless it continues as the ‘capital’ of the ‘United States of Europe’. “Too big for Europe but too small for the world” (again in Martin Schulz’s words) is Germany’s scary alternative to genuine consolidation of the eurozone and the EU as a whole.

Finish the business

The choice seems to have been made in Berlin (as well as in Brussels, judging by Jose Manuel Durrao Barroso’s State of the Union speech) to trade short-term problem-solving for the strategic, historic move of finalising the unfinished business of European construction – paying the costs for the collateral damage incurred in the process and hoping it doesn’t go fundamentally wrong before it’s completed.

To look at only the most basic economic facts, if the EU is to become the truly global power it needs to be in the coming decades, the reconstruction process of the eurozone will take account of the fact that, unless the EU knows what its currency will look like ten years from now, investors (who are in Singapore and Australia, not so much in Europe or the US) won’t buy its bonds. “It’s a process”, Schäuble says. “We knew the common currency without a fiscal union was incomplete. But to complete it was not politically feasible in the ‘90s. So what we did was to build a currency and we said ‘as soon as it doesn’t work, we’ll build a fiscal union’. And this is what we’re doing. We’re taking it step by step, we don’t know where it leads, we would create damaging speculations by trying to define it”, the finance minister argues.

For Germany, the deepening of integration is a major economic interest and a crucial political engagement. In a globalised world, the political relevance, economic competitiveness and the security of the EU are dependent on how it comes out of this crisis. And the fate of Germany is fully interlocked with that of the EU. Due to its history, if not also for practical reasons, Berlin cannot afford to be seen as acting alone – it will only scare away its European partners and weaken its global position. Moreover, modern Germany has pinned its entire post-war reputation on the European project. Certainly, the history of the EU goes on, even if Greece should exit the eurozone, or if several countries do, or the common currency just fails altogether. But the harder the blow it takes, the more the Union will be just an empty shell.

The Economist was recently calculating that cost wise, a Greek exit might cost Germany around 4.5% of GDP, while cutting off Greece, Spain, Portugal, Ireland and Cyprus would amount to 20% of GDP. While apparently more expensive, the latter option would avoid Berlin the risk of actually having to give a blank cheque, due to an uncontrollable downturn caused by panic after Greece left the euro. In both cases though, the political and security risk cannot be calculated or pinned down to finite numbers. “I have no clue what happens the next day after Greece leaves. And since I cannot calculate the risk, I’d rather it stayed”, said Jorg Asmussen, a board member of the European Central Bank. Proof that the flagship project of the EU is reversible would make markets plunge, investors flee and domestic savers run on the banks. Spain would be next in line to take the fatal blow. If Italy should also follow suit, it would simply be too big to rescue. All other countries that have asked for bailouts and who are seen as vulnerable would be doomed. Central and Eastern Europe would also be hard hit. Germany would end up having to foot the bill, no matter the amount, to save the rest of the eurozone and in return it would get nothing of the pan-European fiscal discipline and centralised oversight which it has been conditioning its assistance on all along.

It’s the geopolitics, stupid

But forget the economic cost. The failure would all bear down on Berlin. The EU (which would have to retain all eurozone leavers, if it is to save face and keep some relevance) will face a huge problem of democracy and legitimacy – let us not forget that Greece was received into the EU to save it from the Generals’ dictatorship. Also, ‘the weak’ everywhere in Europe (read ‘the South’, the new members, minorities of all sorts, immigrants a.s.o.) will feel that ‘the strong’ (read “the North’, core Europe, the political majority, Brussels institutions etc) will just impose their will and a Union built in their image. And this, against a pre-existing background of widening disconnect between citizens and their representative institutions. Fringe parties, populists, extremists right and left will lash at the established system and enjoy even wider popularity and support than they do already. Those on the ‘periphery’ (whether economic, social, political or geographic) will either launch an assault on the centre or seek to go it alone, in alternative, non-collaborative arrangements.

From a security perspective, the EU will have its two most vulnerable flanks (south and east) exposed and weakened, while the MENA region is still blowing up day after day and Russia is reasserting its dominance wherever possible. China will step in with cash to fill the gap left by a German withdrawal and buy whatever is available in the departing countries. The EU enlargement and neighbourhood policy will be compromised, as no aspiring state will believe anymore in the success of integration or in EU commitment to the success of its individual members – they barely do already!

The crisis as an opportunity

Germany will do everything in its power, then, to keep Greece and the PIGS (+Cyprus) in the eurozone – at least for as long as possible. Most likely until the situation becomes untenable without dramatic restructuring and institutional rearrangement of the EU, effected through a revision of the treaties which would erect a solid political union, solidly equipped for the challenges of the ‘Asian century’. Unless something goes terribly wrong while waiting (which might happen also if it acts, rather than wait), this shouldn’t be too expensive for Germany or Europe. Berlin’s insistence on Europe as ‘a community of law’ and on abiding by treaties or amending them, but not breaking them also serves the interest of obtaining a sturdy final construction, following structural revision, rather than just paying out of the federal budget to fix sectoral problems and getting no return on investment. In fact, Jorg Asmussen is keen on stating that we are dealing with not one, but several crises: of public debt in some cases, private in others and a competitiveness crisis in yet other cases EU-wide. Reforms will largely have to be national, adequate to each individual situation, but supervised and sanctioned by central institutions – a federative format.

It does not mean that Germany will seek to keep the eurozone and the EU as they are now. The consolidated Union may look quite differently from what we know of it. Simultaneous deepening and broadening of integration are impossible. Since the choice has been made for the former, rather than the latter, we will see a ‘core EU’, made up of those members of the eurozone willing and able to comply with common regulations – and an outer circle, who will be left out of the decision-making process and whose only chance for a seat at the table will be to fulfill the criteria in a sustainable manner (one-time shots like in the case of Greece won’t work anymore) and join the euroclub.

Some more equal than others

A two-speed Europe is already a reality, with some out of the eurozone, out of Schengen, out of the fiscal pact etc. It will be further institutionalised as such – and paradoxically, a strong Europe will be a two-tier Europe, which will have to throw the weaklings overboard to keep the healthy ones alive (and together). But to avoid the high political cost, it won’t just dump them in the water, but will provide them with rescue boats too – to be able to follow the big ship and jump back on board when and if they’re ready. It will continue to pay for their economic recovery, the ECB will continue to buy politicians time and EU leaders (like Barroso in his latest address) will continue to insist on the importance of unity and solidarity – an exercise in (sometimes healthy) hypocrisy which the EU has long practised, at least if we look at its way of permanently reasserting its commitment to Balkan and Black Sea neighbours, while in practice keeping many of them at arm’s length. De facto, though, new members in Central and Eastern Europe and the south will be losing to a large extent the main benefit of accession: participation in decision-making. Also, from a security point of view, they won’t be faring well in a context of growing Russian boldness, Chinese cash-powered influence, internal challenges (from quality of democracy, to social and economic problems) and migratory pressure from a boiling Middle East and North Africa. Some will be very frustrated, like Poland, who have been aspiring to and striving for central status in the EU and are close enough to meeting the eurozone criteria, while also experiencing economic growth superior to the eurozone! They will need to be pacified and reassured and it remains to be seen if a consolidated EU will be able to come up with creative solutions to address that – as well as do well itself, without the pro-EU enthusiasm and stamina which currently endure in these states only.

Long and winding road

Certainly, many things can still throw the process off course. Barroso’s insistence on the political union, Merkel’s stance, the decision of the Court in Karlsruhe and additional powers to the ECB all seem to point in the direction outlined above. The road is long and bumpy though. Germans seem to be aware of it: the political debate in Berlin has not been insensitive to Germany’s external perception(increasingly unfavourable, as exercising patronising tutelage or arrogantly reproaching others – Greeks – that they work less), to the autonomist pressures from Germany’s own Länder, to the democratic deficit (efficiency vs legitimacy, European governance), social acceptability of measures (and containing German taxpayers’ discontent without letting it turn into euroscepticism) and the issue of a possibly necessary referendum on Europe in Germany, or to the French-German relationship (“la grande nation” having entertained rather different views from Berlin’s lately). Very importantly, one decisive factor is the 2013 elections – a key element which discourages Angela Merkel from making any dramatic move before then,s which could make her lose control over the whole thing (such as a Greek exit!).

Overall, the difference between forcing Greece and/or the PIGS out of the eurozone and keeping them in, but marginalising them, is the political face-saving and the consolidated institutional structure of a true and truly functional political and monetary union. Both, crucial gains for Germany (and for the EU). The reasoning behind the aforementioned scenario probably goes along these lines. It will be interesting to see though if such a complex process, which will continue to require extensive and often painful negotiations and compromise among the 27, also manages to solve one other crucial problem the EU has been facing for a while now, described to me very well by prominent German diplomat Wolfgang Ischinger: “I remember how, in the past, after we’d spend long hours in multilateral negotiations at EU level, on whatever issues, our leaders would eventually come out for press statements and say how they’d succeeded in moving the EU a step further through their political decisions. Now they go out and explain how they’ve defended the national interest against the EU!”

Articol publicat pe www.stratfor.com