- - Tuesday, October 5, 2021

Angela Merkel accomplished much but leaves a disappointing legacy.

With partners in France and America, she held Europe together through the global financial crisis, sovereign debt meltdowns in Southern Europe and Ireland, the Russian invasion of Ukraine, and the Middle East refugee crisis.

Whether by circumstances or personal disposition, she most often chose incremental, non-systemic change—or measures that resonate with German culture or her scientific roots. Those don’t always best serve Germany’s or Europe’s long-term interests.

She’s a grand champion of the Paris Climate Agreement but leaves Germany poorly situated to go green. After the 2011 Fukushima nuclear accident, she impulsively decided to phase out nuclear power. This reflected deep German ambivalence about splitting atoms for electricity. Still, Germany has not built an adequate grid to transfer or store enough wind and solar power from the north for the industrial south. The country still uses too much coal and Russian natural gas.

Germany spends well less than 2 percent of its GDP on defense, and its military is in poor readiness to make NATO a credible deterrent to Russian adventurism.

Nord Stream 2 deepens German dependence on Russian fossil fuels and enhances President Putin’s resources to create mischief. Mrs. Merkel’s decision to complete the pipeline despite US and European opposition leaves a deep scar on the western alliance and Germany vulnerable to Russian extortion.

Led by Germany, wealthier EU states imposed terrible austerity on Portugal, Spain, Greece, and others during the sovereign debt crises that followed the Great Financial Crisis.

This reflected her physicist’s mechanistic view of the universe. These nations spend too much, are inefficient, and have borrowed to paper it over, so they should adopt German ways—starting with straight jacket budgets.

In doing so, she ignored the fundamental inconsistencies in the currency union and how Germany exploits those. In 2003, Chancellor Schroder initiated aggressive labor market and social program reforms. After Mrs. Merkel took over in 2005, those raised productivity and lowered labor costs, and had Germany kept the Deutschmark, it would have appreciated.

A stronger German economy left the euro undervalued for its exporters and overvalued for industries in Portugal, Italy, Greece, and Spain. Germany’s current account surplus soared.

Instead of spending the windfall on public investments that might have spurred modernization, more imports from the south, and productivity-enhancing growth across the continent, Mrs. Merkel ran up trade and budget surpluses. She left the PIGS struggling to finance their public sectors and modernize.

The restructuring Germany imposed on the PIGS when they could no longer borrow didn’t fix these systemic dysfunctions. Now the pandemic has put those countries in terrible debt again and potentially back in the soup once euro area limits on national budget deficits are restored.

The euro area still lacks unified fiscal and labor market policies, deposit insurance, or bank regulation similar to the United States. That makes the EU a free trade paradise for Germany and a monetary hairshirt for Southern Europe.

Germany has no Tesla. Its large automotive manufactures are playing aggressive catch up in electric vehicles and will likely succeed. But many midsized companies that make pistons, tailpipes, and other components for internal combustion engines lack expertise in batteries, software, and microelectronics and will shrink, shutter, and shed hundreds of thousands of jobs with even greater knock-on effects.

Germany lags in access to high-speed internet, and both its public sector and businesses lag in digitalizing their operations. Many health care agencies have been reporting new COVID-19 infections by fax—that beats snail mail but not by enough. 

Germany has been more successful than its peers exporting to China. However, as the Middle Kingdom’s technological sophistication expands—especially in software, artificial intelligence, and chips—it will need less European technology, and the German export-driven growth machine will slow.

Still, China’s role in the country’s present prosperity makes Germany and the rest of Europe little inclined to join the United States, India, Japan, Australia, and the UK in muscling up to address China’s military challenge. Without more European help in the Pacific, America must devote fewer defense resources to Europe.

Germany and the rest of the continent fail to reckon that while Russia poses a regional challenge, Americans see China as a global threat to democracy. We will redirect our military to the Pacific with willing partners, and as the submarine deal with Australia demonstrates, economic and technological cooperation will follow—leaving Europe marginalized.

Under the new chancellor, Germany will have to modernize its economy, pursue a less selfish role in the EU and provide more for its security.

• Peter Morici is an economist and emeritus business professor at the University of Maryland and a national columnist.

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