On the economic level, nothing is more exemplary for Europe?s economic distress than the approval of the Lisbon Agenda in 2000 by Europe?s heads of state with the aim to make the EU the most competitive and dynamic knowledge-driven economy by 2010. Reality, however, has made it obvious that the Lisbon Agenda has proved to be nothing more than wishful thinking. Whereas almost every other part of the world has been experiencing strong economic growth ever since, Europe?s economy has been growing at a snail?s pace and unemployment remains at all time highs.

While many Europeans scoff at the economic growth of India and China, arrogantly pointing to the underdeveloped state of these economies, the economic growth of the United States as a competing developed economy leaves little room for false self-assurances. Ironically, economic growth in Europe has been so mediocre that growth rates that would indicate a recession in the United States are praised by European leaders as ?solid growth.? With fragile economic growth come stagnating wages and a decline in living standards evidenced by low consumer spending and angst savings patterns. At this time, it is very likely that Europe?s economy in the year 2010 will be weaker, in relative terms, compared to other economies than it was in 2000. This would constitute a far stretch from the objectives of the Lisbon Agenda and cause a public disgrace for Brussels? bureaucrats and national governments.

Europe is also hurting politically. Strategic mistakes, made by European heads of state and European politicians, leading up to the EU enlargement on May 1, 2004 which added ten new member states without first reforming Europe?s political institutions and absurd fiscal policies, proved to be a mistake of colossal proportions. While Europe?s most important institutions, the European Commission, the European Parliament and the European Council, have hardly functioned with 15 member states, they are doomed to deadlock in an enlarged Union of 25.

While representatives of the member states ceremoniously signed the constitution on October 29, 2004, the document proved to be less popular among European citizens.

On May 29, 2005, the French voters said non followed by a resolute Dutch nee on June 1. Uncertain about the popularity of the Constitution among their respective electorate, governments of other nations, such as Germany, did not bother to ask their citizens about their opinions on such a fundamentally important document which will deal a further blow to national sovereignty rights. While most voters that objected to the Constitution never even had a look at the document they rejected, the message to Brussels and their national governments was clear. We do not want more of the same Europe, one which keeps on making decisions affecting every citizen without a real democratic system in place. Many Europeans rightly criticize the lack of a democratic legitimization of Europe. The European Parliament still has only very limited legislative powers and a one person one vote representation is illusory in a Europe where one German member of the Parliament represents 830,000 compared to his colleague from Luxembourg who represents 77,000 constituents.

Europe?s executive organ, the European Commission, is also tied down in a leadership crisis. Having been at the forefront of economic liberalization in the '90s, resulting in the greatest privatization phase the continent has ever seen, the Commission has become increasingly enfeebled and influenced by national governments. Several large member states, notably France and Germany, have used their political leverage to shield their economies from the forces of free market competition. As a consequence, important directives, such as the takeover directive, have been watered down and labor markets been shut from ?unfair? competition from laborers of the ?New East.? In addition, several large member states keep on pushing the European Commission to impose European minimum taxes to discourage ?tax dumping? from smaller member states. It has to be seen whether the European Commission will give in to these demands in the near future. There is also further trouble from the publicity front. An increasing number of Europeans regard the European Commission as the equivalent of the Soviet Union?s Politburo with the mission to implement bureaucratic ideas on an unprecedented scale in all of Europe. Recent suggestions by European bureaucrats to levy an email tax on all emails sent from one European to another did not really help to change that.

In a time of global turmoil, in which the limits of American power are obvious to the rest of world, Europe seems unable to take on a leadership role. In addition, the EU?s often proclaimed common foreign policy is non existent, which was illustrated during the Iraq war and with the current crisis in the Middle East. While this is one area, next to a European defense policy, where European integration would make sense, it doesn?t appear that that will happen anytime soon. Not only is there no structure in place which defines Europe?s global interests but military spending is down in most member states. This leaves the world stage to an overstretched United States, an oil-powered Russia and an emerging Chinese challenge.

Germany ? Europe?s natural born leader in a crisis

While Germany is also experiencing profound problems, which will be discussed later, she has some features that make her Europe?s natural leader. Economic growth has remained weak for over a decade but nevertheless Germany still has Europe?s largest economy and population, not to mention a very highly educated workforce. Despite high taxes, only a recently recovering economy, and a rigid labor market, German businesses have successfully restructured themselves in recent years and have conquered markets abroad - and as a result are more competitive than ever. Another advantage is that both Germans and their political leadership have a realistic picture of Germany?s and Europe?s role and influence in the world. Unlike in France and in the United Kingdom, German colonial rule ended a long time ago and national hubris has suffered heavily in Germany since its crushing defeat in the Second World War.

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It appears, however, as demonstrated during the last world cup in which Germany took third place under the direction of coach Klinsmann, that Germans are rediscovering their love for the fatherland with patriotic feelings comparable to that in most nations world wide. Interestingly, the recent wave of black-red-gold fervor, begun among high-school students and members of the so called generation XYZ, waged to show their colors despite of concerns of many ?68 left wingers. The fervor rapidly spread among all Germans irrespectively of their ethnic or religious backgrounds. For the first time in modern German history, the German flag was used to demonstrate inclusiveness.

Moreover, while the current constitutional system has its flaws and needs to be reformed, Germany has the advantage of having a relatively stable political and social system. Mass riots like in France are hardly imaginable and Germans in general have a more pragmatic approach to reforms deemed necessary by the government.

The leadership problem ? Why Merkel is not Thatcher (nor Klinsmann)

The German leadership problem: Germany?s current problems are mainly caused by a lack of political leaders with a clear vision for Germany. While Germany?s multi-party system makes it much harder to form a stable government than in the UK or the US, the main cause for slow economic and social reforms is the lack of visionary political leaders such as Ronald Reagan or Margaret Thatcher. Some people argue that this is due to the fact that most of Germany?s leading politicians are career politicians who have never gathered real world experience in another profession.

While this plays a role indeed, the selection process for party leaders is more to blame for Germany?s current misery than anything else. This process makes it almost impossible for party members with a professional career outside of politics to get ahead in the party system. Basically, the party leadership picks the chancellor candidate. A real participation of the party base does not take place. Not surprisingly, the Christian Democratic party leadership chose rather uncharismatic figures such as Edmund Stoiber in 2002 and Angela Merkel in 2005 as its chancellor candidates. It is highly unlikely that these candidates would have ever survived a US-style primary election. Not surprisingly, neither really appealed to the majority of the German electorate. Stoiber lost against incumbent ?charming boy? Schroeder and Merkel had to enter into a murky ?grand coalition? with the Social Democrats.

Interested in attending a Radnor political or legislative briefing? Please call Sarah Scotch at +1 202 659-4300 for more information. Our next briefing, by Louis-Lyonel Voiron, will concentrate on the coming French presidential election and the possibility that the right-of-center candidate, Nicolas Sarkozy, will be brought down not by the Socialists but by jealous members of his own party.

While reaching to the left on economic and social issues (she is responsible for the largest tax hike in Germany?s history and more direct subsidies for families), Merkel has not proved to be an effective leader on foreign policy issues. While Merkel was praised by some foreign media outlets for brokering the EU budget deal in December 2005 between France and the United Kingdom, the German taxpayer, already accounting for the largest part of the EU budget, will once again bear the burden of the compromise.

It is highly questionable if Merkel will be able to modernize Europe?s institutions and balance the interests between Brussels and the member states now that Germany has taken over the European Presidency this month. Some observers vehemently doubt her intellectual ability to define Germany?s foreign policy objectives in the twenty-first century. Germans have not forgotten how much respect Germany earned in the world for Schroeder?s, partly short sighted, opposition to the US-led invasion of Iraq. The current American administration is grateful with Merkel in office, mainly due to the fact that almost all other European willing coalition leaders have been ousted by their electorate. But one may argue that Merkel?s Germany is less a global leader now than during Schroeder?s reign, very much in the tradition of the check-book diplomacy of the Kohl era.

Under the given circumstances, it is unlikely that the incumbent Merkel administration will survive the full four-year term, perhaps giving Germany a chance for a real reform government. Therefore, it could very well be that time will run out fast for Mrs. Merkel where she will enter history as a transition Chancellor whose heyday was the success of the fabulous Klinsmann-team.

Conclusion

Germany?s internal struggle has two implications for Europe: First, a reformed and self-confident New Germany will be a blessing for Europe since other large nations such as France and Italy will eventually be more willing to modernize their sclerotic economic and social systems if Germany is moving ahead. A new Germany would also be able to lead Europe out of its current crisis to the benefit of the United States who needs a strong Europe. While France and the United Kingdom might jealously attempt to counter a German leadership role, most smaller European nations would rather have Germany lead than France. Besides, many of the new member states in the East have a traditionally positive attitude towards Germany, due to cultural and political ties.

On the other hand, if Germany, as Europe?s largest economy, does not solve her current problems in the very near future, by means of a capable and decisive leadership, the twenty-first century will be the turning point in Europe?s history and Europe will become a powerless actor in the flat-world of the twenty-first century somewhere between the United States and emerging powers like China and India. One can?t help to wonder; where is the Chancellor who can do the job?

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