The EU, a Liberal Empire

In Wolfgang Streeck’s latest book, published in English next week as Taking Back Control?, the German sociologist describes the process of European integration since the Maastricht Treaty in 1992 as the construction of a German-driven liberal empire. Naturally, when Streeck speaks of “empire,” he does not necessarily mean a power that pursues military conquests in order to extend its authority from center to periphery. Rather, he uses this term to refer to state institutions that cede sovereignty to some other, outside center of power.

We can readily accept Streeck’s description of European integration as structured by a strong center in the former deutsche mark area, and a periphery in the Mediterranean and in Eastern Europe. (France’s role is somewhat exceptional, but not crucial to this fundamental relationship.) At the same time, Streeck indicates an important precondition for the building of an empire on a “liberal” basis. In brief, there must be a ruling elite in the peripheral countries that is ready to shoulder the conditions set by the imperial center. This elite thus counts on a legitimacy drawn “from above.” Yet it must also make this relationship digestible to its own national electorate, by promoting the message that whatever benefits the imperial center will have positive repercussions for the peripheries too. The plan for producing this positive effect is sometimes rather opaque, since European integration itself has always demanded short-term “sacrifices.”

The central thesis here is that austerity has provided the cornerstone of this imperial integration process. But not only that. For the war in Ukraine abruptly ended this process of imperial construction. With the war, one of the pivots of the German hegemonic design — the possibility of a low-cost raw materials supply — has clearly been undermined. We could add that the handling of the Nord Stream pipeline sabotage affair has fundamentally weakened the credibility of Germany’s ruling circles.

Apparently, in some ways, this is good news: given what we’ve said already, perhaps the peoples of Europe should breathe a sigh of relief at such a change. Perhaps this means no more empire, no more austerity. Unfortunately, it is quite clear that this is not what is happening; rather, a new and sharper wave of austerity is bearing down on Europe, not sparing even Germany itself, a victim of the ideology of its own ruling classes. This is because from an austerity imposed by Berlin there has been a seamless transition — except for the brief pandemic interlude — to an austerity imposed by Wall Street. If the first wave of austerity imposed on Europe was functional to German imperial ambitions, this new wave is one of the foundations of the American attempt to maintain its global hegemony.

A Brief History

There are major historical reasons why, ever since the mid-nineteenth century, Germany has tended to be a force for disrupting European stability.

From the long series of continent-wide conflicts that preceded German unification (reaching as far back as the Thirty Years’ War and the Napoleonic Wars), the geographical area that eventually became Germany inherited a massive process of industrial (and military) innovation. The German nation, by economic and demographic capacity, arrived at unification in 1871 with an immediate imperial potential. But this enormous development potential was constrained within a cramped territory that lacked “peaceful” outlets for empire, i.e., ones that did not imply immediate conflict with the established imperialist powers. Upon the foundation of the Reich, not only were the seas dominated by the British Empire, but the German state was also prevented from achieving a “land-based” imperial solution on the model of the United States. We learn this especially from Giovanni Arrighi.

With defeat in World War I, Germany had to give up for good on a “British-style” imperial model. With defeat in World War II, a “US-style” approach to conquering colonized territory proved impossible, despite the savagery on the Eastern “frontier” (lebensraum), where Slavic peoples played the role elsewhere allotted to Native Americans. Different proposals for peace after 1945 were thus based on the dismemberment of the German state. Before decolonization confirmed that the Cold War was a truly global contest, it was first and foremost a response to the German question.

So too were the early “transatlantic” attempts at European integration. The European Coal and Steel Community sought to bring steel and coal production (war industries par excellence) under common control; with the failed European Defense Community and the Western European Union (military alliances of the 1950s), there were instead attempts to integrate political and defense systems. If it was impossible to stop Germany returning to the concert of nations, this could at least be done in a negotiated manner in cooperation with other Western powers. Especially since there was the Soviet bogeyman to hold out against.

It was only with détente, and the 1970s easing of Cold War tensions, that projects for a military integration of Europe were really supplanted by economic ones. The Treaties of Rome of 1957 had given rise to the European Economic Community, a single market within which the West German economy, enjoying a period of accelerated economic growth, was destined to play a prominent role. Still, it was thought that this could be balanced by — and “put at the service” of — an integration that was also political, in the long run beneficial to all the founding member states. Especially since, shortly thereafter, with the Social Democrats’ long hegemony in West Germany’s government, it was this latter that offered the most articulate proposal for a peaceful solution of the European (and German) question: the Ostpolitik launched by Chancellor Willy Brandt, favoring better relations with the East.

But the eventual moment of German reunification — the event that most energized the subsequent push for the definitive European integration and its uncontrolled enlargement — was reached in 1989–90 amid a moment of resurgent neoconservativism. The Ostpolitik strategy was replaced by that of the annexation of the former German Democratic Republic (GDR) in the East. This meant flooding its territories (and productive apparatus) with a neoliberal fervor that pointed toward a model for the subsequent construction of the European Union born at Maastricht in 1992. Soon thereafter, the economies of the former Soviet bloc were inserted into a subordinate position within the economic space centered on a new, united Germany.

Austerity and Empire

As time passed, the design for a new German hegemony expanded to include the entire continental space. The austerity imposed on member states and the boundless eastward enlargement of the EU were the pillars that supported the construction of Germany’s neoliberal empire.

EU enlargement has enabled German industry to be able to stretch value chains to geographical areas dense with relatively cheap, skilled labor and that have “friendly” tax regimes. At the same time, austerity gave German capital a threefold competitive advantage: First, it allowed Berlin to finance public spending at (even) negative interest rates through the “spread” mechanism (i.e. the difference between bond yields in different eurozone member states, as a measure of market confidence). Moreover, it turned the productive apparatus in potential competitor countries into a desert. Added to that, it offered the ruling classes of peripheral countries the ideal motivation to cut wages in areas destined to fit into a subordinate role in German industry’s supply chains, thus lowering the costs of these supplies.

The pact between German big capital and European high finance held up the construction of the actually existing EU between the late 1990s and the 2010s. Bit by bit, apparently rebellious governments fell victim to this pact, whether in a direct and violent way as in Greece, or in a more subtle way (also because the threat was far less credible) as in Italy.

Meanwhile, governments in peripheral countries took it upon themselves to construct an ad hoc narrative to ease the passing of the imperial design. They took up the rhetoric of Mediterranean peoples “living outside their means,” who thus needed to make “sacrifices” for their own good. Take a prominent European banker such as Tommaso Padoa-Schioppa — mysteriously enlisted among the leadership groups of the Italian left, becoming the economy minister in 2006–8. In his words, it was time for Italian youth to return to savoring “the hardness of living.”

In any case, with the neoliberal reforms introduced by the German Social Democrats (then led by Gerhard Schröder), Germany was moving from the role of the “sick man of Europe” to that of the “engine of European growth.” Paradoxically, however, it was not the SPD that capitalized on the dividends of this apparent second economic miracle (after the one of post-WWII decades), but their Christian Democratic opponents under the leadership of Angela Merkel.

From German Austerity to Wall Street Austerity

The war in Ukraine abruptly interrupted this process of imperial construction. Its crisis was made explicit by the Ukrainian sabotage of the Nord Stream 2 pipeline. Economically, what blew up was one of the economic foundations of German capitalism, namely the possibility of access to cheap Russian gas. But above all, politically, what blew up was the credibility of the German ruling classes as imperial ruling classes. The emperor has no clothes: the political center of the empire is even more subservient than the peripheries to a design that has its driving force outside the continent, namely in Washington and Wall Street. Germany has turned out to be an economic giant with feet of clay — and a political dwarf.

The new wave of austerity looming in Europe, far from aiding the resumption of German Europe-building, definitively sinks Berlin’s ambitions. It is today grappling with a recession from which it cannot extricate itself because of economic policy dogmas that were even written into the national constitution in the aftermath of 2008.

We have thus moved from a German austerity to a Wall Street austerity. With the new wave of privatization and welfare cuts in Europe, large US hedge funds are handed the chance to invest in the monopoly sectors of energy and telecommunications, and to offer Europeans (or those who can afford it) private insurance. Hedge funds thus become managers of an immense river of liquidity, to be reinvested, given the high interest rates secured by the Fed, in star-spangled government debt.

The Biden administration, the Federal Reserve, and big investment funds thus tried to establish a pact of steel to attempt to keep US global hegemony afloat, offloading the costs of the operation on Europe and especially on its weaker sections. The Inflation Reduction Act and the new arms race have been paid for indirectly by the savings of the European middle classes, mediated by hedge funds such as BlackRock, Vanguard, and State Street. BlackRock CEO Larry Fink is the guest of honor at almost all the European chancelleries, first of all the Italian government headed by the alleged “sovereigntist” Giorgia Meloni, who is quite ready to sell off Italians’ health care and pensions to foreign speculators.

Sinister Appeal

But it is Germany itself that has come into the crosshairs of the new alliance between the White House and Wall Street high finance, and in particular its still relatively unfinancialized productive apparatus, devoted to industry.

We have recently seen Italy’s Unicredit — which is in fact largely controlled by the Big Three, Wall Street’s major investment funds — attempt a hostile takeover of Commerzbank, a massive player in the German economy. If Commerzbank ended up in the hands of Unicredit, these American hedge funds would control Germany’s main financial hub and, indirectly, much of Germany’s productive apparatus.

Meanwhile, Germany itself is becoming the epicenter of serious and disturbing political upheavals. The far-right electoral avalanche in the Eastern German states, which has a strong potential to unleash a crisis of incalculable proportions on the entire national political system, is but the first stirring of a dynamic hardly limited to Germany alone. The mix of social crisis and revival of humiliated German national sentiment should sound sinister to European ears.

In such a scenario, it would be fatal for the European ruling classes to look at the German situation with ill-concealed satisfaction — or a spirit of revenge for the failures Berlin has produced over the past twenty years. It is crucial not to allow nationalist protest to become fused together with the reborn expansionist drives of German heavy industry.

This is especially relevant in a situation where wars are raging on Europe’s eastern and southern borders; where a BRICS meeting in Kazan, Russia, has put on the agenda the start of the disengagement from the dollar as the international reserve currency; and social crisis is bringing nationalist and racist movements back into vogue. In such a situation, Willy Brandt’s original ambition regains all its relevance: a democratic Europe capable of acting as a mediator between West and East, between North and South.