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01 April 2023

Germany - the EU's unreliable member

What is often forgotten in the UK debate about Europe today is how difficult the relationship had been while it lasted. In the early 1980s, Margaret Thatcher derailed consecutive EU summits with her incessant demand to get her money back. An exhausted group of European leaders finally caved in on the UK budget rebate in May 1985. It was a victory for the UK, but it came at a political cost that was underestimated at the time. Thatcher was left with no allies in Brussels, and that isolation informed her European politics going forward. In 2011, David Cameron vetoed an EU treaty change to give the eurozone a formal identity inside the EU. By the time of the Brexit referendum in 2016, the UK has become a semi-detached member with opt-outs of various degrees from the single currency, the Schengen agreement on passport-free travel, the charter of fundamental rights, and home affairs.

The most interesting development that has happened in the EU since the UK left is that Germany has taken over where the UK has left - as the unrealiable leader of the awkward squad. Germany always used to put domestic industrial interests ahead of everything, be it Russian gas or Chinese trade policies. But it is getting worse.

Last week, Olaf Scholz had his Thatcher-rebate moment, when he derailed an entire European Council in defence of his government’s decision to reopen the 2035 deadline for the phasing out of fuel-driven cars. The EU had already agreed on this. Ministers and the European Parliament have prepared concrete legislation. At the summit, other EU leaders were furious, including those who normally align with Germany on most things. The prime ministers of the Netherlands, Belgium, Luxembourg, Latvia and Finland all criticised Scholz' car crash.

And like Thatcher in 1985, Scholz, too, achieved a Pyrrhic victory.

What had happened was the smallest member of his coalition, the liberatarian FDP, wanted an exception from the 2035 phase-out for cars powered by electro-fuels. E-fuels are made from carbondioxyde, captured from industrial processes, and hydrogen from renewable energy sources.

The EU’s previous agreement had been for all ordinary cars to switch over to electric power by then. E-fuels would be reserved for modes of transportation that need it - lorries, ships and airplanes. From what we know about the pipeline of planned investments into e-fuel plants, there will hardly will be enough of them for lorries, let alone for cars. They are very expensive to produce. One of the few German car companies that is betting on e-fuels is Porsche - whose clients will, presumably, have enough money to purchase what would ultimately be a super-expensive fuel. Most of the other car companies announced that they will be switching over to electric cars. It also happens that Christian Lindner, the chairman of the FDP and Germany’s finance minister, is a personal friend of the chief executive of Porsche, Oliver Blume. Lindner is also the only member of the German government who drives a Porsche. You could say that a Porsche has crashed into the Justus Lipsius building in Brussels last week, the building where EU leaders meet.

It is not hard to conclude that Scholz allowed a cynical lobbying effort by one of his senior ministers to hijack an entire meeting of EU leaders in defence of an idea that will soon probably be forgotten. The European Commission and Germany ended up agreeing on a formula compromise about this wretched e-fuel business, but the legal and commercial obstacles are formidable.

The Porsche exemption is not the big issue. Much more important is the political damage this whole episode has caused. Through a series of erratic policies over the years, including the incessant support for the Russian Nord Stream 2 pipelines in the Baltic Sea, Germany has become increasingly isolated at EU level. Scholz has now set a dangerous precedent - that it is acceptable for a large member state to reopen deals that already been agreed. We should remember that this is exactly what Thatcher did when she reopened the EU budget, an issue others thought was settled. There is a lot of group dynamics going on in the European Council, an institution that thrives on unwritten rules. Viktor Orbán, the Hungarian prime minister, did not say a word during the meeting, but his take-away from this meeting will surely be that he can do this too. Reopening consensus agreements is what populism are all about. Giorgia Meloni, the Italian prime minister, would not have dared to do anything like this, but if Germany can do it, anybody can.

I understand that countries have vital national interests. But saving Porsche is not in the vital German interest, however you define it. In the grand scheme of things, the British rebate was not nearly as petty. In 2014, for example, it amounted to €6.1bn (https://www.europarl.europa.eu/RegData/etudes/BRIE/2016/577973/EPRS_BRI(2016)577973_EN.pdf). Cameron’s 2010 veto, by contrast, fell into the petty category. He objected to proposed changes in financial services legislation that would leave the City of London at a potential disadvantage. The irony is that Cameron’s isolation, which contributed to the Brexit referendum, left the City at a much bigger disadvantage.

In its European discourse, Germany is on the same path as the UK was ten or twenty years ago. But there is one big difference between the two. The UK’s presence was not critical to the EU’s survival. It is harder to think of an EU without Germany. As fiscal conditions get tighter, I would not be surprised if one day Scholz were to go Brussels with a demand to get his money back.

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