Germany struggles to adjust to a new era

Ivo Daalder, former U.S. ambassador to NATO, is president of the Chicago Council on Global Affairs and host of the weekly podcast “World Review with Ivo Daalder.” 
Russia’s invasion of Ukraine has created a profound identity crisis in Germany.
The first shots of the war effectively blew up Berlin’s longstanding policies on security, energy and the economy. And though the coalition government has taken some immediate and important steps to address the crisis in the eight months since, it remains to be seen whether Berlin will embark on a course that these new times demand.
Ever since the end of the Cold War, a reunified Germany has approached its role in Europe, and around the world, based on three assumptions: that its security relied on dialogue and engagement rather than defense; that its energy needs could be met by cheap Russian gas and oil; and that its future prosperity rested with exports to an ever-expanding Chinese market.
None of these choices were inevitable. Indeed, Germany’s friends in Europe and across the Atlantic repeatedly warned of the dangers these policies entailed. But no matter which political party was in power, Berlin declined to listen — until Russia’s invasion finally forced a new coalition government to change course.
The much-criticized Nord Stream II natural gas pipeline that was to carry gas directly from Russia to Germany has now been mothballed. Chancellor Olaf Scholz announced a €100 billion special fund to reinvest in Germany’s military and committed to spending 2 percent of GDP on defense. And the country’s longstanding reliance on Wandel durch Handel — change through trade — was finally questioned.
These immediate course corrections represented a much-needed recognition that Germany had to change direction. Yet, in these changes, Berlin has so far failed to set a new, more sustainable course —for both its own and for Europe’s future.
Take security policy, for example. For many decades, even during the Cold War, German governments advocated dialogue as the best way to engage an adversarial government. Called Ostpolitik, the approach was based on the idea that change came through engagement — Wandel durch Annäherung — and it was seen as successful in ending the Cold War without shots being fired and with Germany’s reunification.
But dialogue and engagement alone were never going to be enough to ensure Europe’s security. It also required strong defense — which the United States and NATO provided, and without which dialogue and Ostpolitik would surely have failed.
Yet, after the Cold War, and as the cost of unification rose precipitously, successive German governments ignored defense responsibilities, leaving the largest European country with a military that could barely fight or deploy.
And though the proposed €100 billion defense fund will begin reinvestment in military capabilities, it’s hardly enough. Germany’s under-investment in defense has been going on for decades, while more serious allies have been spending at least 2 percent of their GDP on defense — a level Germany last met in 1991. And at a time when many of its neighbors are increasing defense spending to 3 percent, Germany will only now meet its 2-percent obligation by relying on the special fund to fill the gap.
Not only is Berlin still underspending, but it continues to hope dialogue with Russia will ultimately bring peace as well. For months, Scholz was reluctant to say Germany wanted Ukraine to win the war, and he has refused to send tanks to help Kyiv recapture territory lost to Russia at the outset of the war. Ultimately, it may well come to negotiations to end the fighting — but only if Ukraine is in position to negotiate from strength.
Germany’s energy policy has been equally flawed. The error started 50 years ago, when the then-Bonn government entered negotiations with Moscow to build a gas pipeline from Siberia. Ever since, Germany has deepened its reliance on Russian gas, dismissing frequent warnings that its dependence would give Moscow leverage over its policies. Even when Russia repeatedly used energy as a weapon against other countries, successive German governments continued to invest in the country’s gas — authorizing a second Nord Stream pipeline and selling its gas storage facilities to Gazprom.
Germany’s now paying for this folly.
It has scoured the globe for alternative supplies to fill its gas reserves for the winter, causing a steep rise in global gas prices. The government has promised to help consumers and industry bear this burden by allocating up to €200 billion in subsidies, but such largesse has now undermined the Europe-wide effort to address the energy crisis — which Germany’s overreliance on Russian fuel partly caused.
Fortunately, the new government has made clear it will end its reliance on Russian fossil fuels. It stopped importing Russian coal and will end oil imports before the year is out. Gas imports have also slowed, and it’s unlikely the government will support repairing the Nord Stream pipelines that were blown up.
However, there’s one major challenge remaining for Germany: its reliance on a growing Chinese market to boost its export-led growth.
The Chinese market has been critical for Germany’s car and advanced manufacturing industries — the backbone of the country’s economy — and that will have to change. Not only is China’s economy failing to grow as fast as German industry had anticipated, but as it becomes even more authoritarian and its economy comes under increasing state control, the risks of relying on China will outweigh any benefits.
Thankfully, in this area, Berlin has already begun applying the lessons it’s learned from Russia. When it comes to doing business with Beijing, Foreign Minister Annalena Baerbock recently told German CEOs, they “cannot afford to follow a ‘business first’ mantra alone, without taking due account of the long-term risks and dependencies.”
Germany is currently standing at a crossroads. Now that the illusion of its past policies has been shattered, it has an opportunity to do what it should have done long ago: become a true leader of Europe, by supporting and, when necessary, underwriting the Continent’s security, prosperity and freedom.
Its past mistakes and future potential demand nothing less.