'They're Not Getting any Warmer' Merkel Faces Difficult Talks in Washington

German Chancellor Angela Merkel is traveling to Washington this week to discuss the financial crisis and climate change with US President Barack Obama -- two issues where Germany and the US are deeply divided. In the new world order, Europe is looking increasingly irrelevant for the US.
Von SPIEGEL Staff

When US President Barack Obama recently met with German Chancellor Angela Merkel  in Dresden, he did something completely unexpected in the middle of their conversation: He deviated from the program.

When high-ranking politicians meet, the briefing book is one of the most important elements. It includes the agenda and the things a politician is expected to say. Chancellors and presidents like to stick to briefing book, because it gives them security.

In Dresden, Obama remained true to the program at first. But then he unexpectedly asked "Angela" why, exactly, she didn't want Turkey to be accepted into the European Union.

Merkel was taken aback. She had to think on her feet and quickly come up with an answer for an issue on which she had no pre-prepared comments.

It became clear to her, once again, that this president is a challenge, both for Merkel and for German politics as a whole. She had even read a book by Obama to prepare for this meeting, but it didn't shield her against this president's surprises.

She could face the same experience this Friday, when she meets with Obama in Washington. Admittedly she will have a briefing book for the visit, but again there will be no guarantee that the conversation will not veer away from the prearranged topics.

The existing agenda itself is difficult enough. The two leaders will talk about the Middle East, Iran, North Korea and, most of all, about the two major crises of the day: the collapse of the financial markets and the possibility of a climatic catastrophe. The tone will be amiable, and yet it will become clear that the American and German positions are far apart when it comes to the question of how to handle these crises.

It is an unsettling situation. The prosperity and well-being of ordinary people are more threatened than they have been in a long time, and yet Germany and its most important partner seem unable to agree on a common course. It isn't even clear that the United States still perceives Germany and Europe as important partners. The emphasis is shifting toward China, and Merkel will find herself having to campaign on behalf of Germany -- something which makes it difficult for her to voice criticism of the US.

A clash of cultures is raging between Berlin and the United States on the issue of financial policy. The administration in Washington is combating the financial crisis by taking on more and more new debt. When former President George W. Bush came into office in his first term, there was still a budget surplus. According to conservative estimates, the United States will accumulate about $9 trillion (€6.5 trillion) in new debt just in the period from 2010 to 2020. The country's debt could soon amount to 100 percent of its gross domestic product. The dollar is already faltering, having lost 7 percent of its value against the euro in the last two months.

But the White House believes its policy of printing money is necessary, not risky. At a conference hosted by the Alfred Herrhausen Society -- a non-profit forum funded by Deutsche Bank -- in Washington last week, the discussion turned to high levels of government spending. Germany's Friedrich Merz, who is a Bundestag member for Merkel's center-right Christian Democratic Union and who specializes in financial issues, warned of exploding government deficits and the specter of inflation. David Lipton, one of Obama's senior economic advisers, responded by saying that this is not the time to worry about government deficits. Instead, Lipton said, this is the time for "sustained spending."

Merkel, on the other hand, is struggling to keep Germany's budget deficit at about 4 percent of GDP this year. In the United States, the deficit will likely have reached 13 percent when the current budget year ends this fall.

The German chancellor also considers the Americans' aggressive monetary policy to be dangerous. Like many economists, Merkel believes that although the current crisis was triggered by the bubble in the US mortgage market, the true causes lie in the lax interest-rate policies of the last 20 years.

If money hadn't been so cheap for so long, there would never have been any buyers for the many high-risk securities that have now turned into toxic assets on the banks' balance sheets. However, central banks are combating the current crisis with precisely the same tools that caused the worst collapse in the global economy in more than 80 years: by injecting even more -- and cheaper -- money into the economy.

In a recent keynote speech at a meeting of the Initiative for a New Social Market Economy, a German organization that lobbies for economic reform, the chancellor criticized the lax monetary policy of the US Federal Reserve. "Together, we must return to an independent central bank policy and a policy of reason," said Merkel, in a comment directed at the United States, "or else we will be in exactly the same position 10 years from now." The Wall Street Journal praised the chancellor's speech with the words "Hallelujah, sister."

In contrast, it took Fed Chairman Ben Bernanke less than 24 hours after Merkel's speech to launch a crusade against the German chancellor. Noting that he "respectfully disagreed" with Merkel's remarks, Bernanke said: "The US and the global economies, including Germany, have faced an extraordinary combination of a financial crisis not seen since the Great Depression, plus a very serious downturn." Then he added, clearly with relish: "I am comfortable with the policy action the Federal Reserve has taken."

Archaic fears, combined with the memories of two different years, are at the root of the two countries' fundamentally different positions on the purpose and tools of monetary policy. The Americans remember the 1929 global economic crisis with horror. For them, there is nothing worse than a shrinking economy, which they see as the epitome of hunger, hardship and ruin. The Germans, on the other hand, think of 1923, when hyperinflation destroyed assets and plunged many into poverty.

Climate Conflict

Competition between countries to attract foreign investment also plays a role in this dispute. In an era of closely connected financial markets, monetary policy can be a significantly more effective protectionist tool than protective tariffs or subsidies. Countries that keep their interest rates low are not just directly stimulating their own economies, but are also weakening their currency, making imports more expensive and boosting the domestic economy even further.

Hence it makes sense for foreign companies that sell their products in a market with low interest rates to also produce in that market. By contrast, a country that tries to prevent inflation by raising interest rates will suffer economically.

In this way, the United States is creating advantages for itself in the competition among industrial nations. This raises the question of whether this competition can continue to exist in its current unbridled form, which touches on the second major issue in the current crisis: the climate.

An astonishing resurrection is also planned for the Washington trip. Merkel is trying to restore the image of being the "climate chancellor" which she cultivated during her 2007 visit to Greenland, where she saw melting glaciers at first hand. Now she plans to ask Obama to significantly step up US efforts to prevent a dangerous warming of the atmosphere and oceans. Most of all, Merkel wants Obama to ensure that an effective climate agreement will be agreed upon at the United Nations Climate Change Conference in Copenhagen in December.

Merkel has been influenced by reports coming from German Environment Minister Sigmar Gabriel, a member of the center-left Social Democratic Party (SPD). In talks with US representatives in Washington and Paris, Gabriel gained the impression that Obama, though eager to pursue strong domestic climate protection measures, is stonewalling when it comes to the preparations for a world climate treaty. "America may have a black president, but Obama still needs to prove that he is also a green president," says Gabriel.

In the UN Climate Conference in Bali in late 2007, the administration of former US President George W. Bush reluctantly agreed to a footnote stating that the industrialized countries are to reduce their CO2 emissions by 25 to 40 percent, compared with 1990 levels, by the year 2020.

The Intergovernmental Panel on Climate Change (IPCC) is calling for the same thing, but Obama has instructed his negotiators to oppose reduction targets at those levels. The IPCC's figures are merely "one scenario amongst others," says Obama's chief negotiator, Todd Stern.

Obama is only willing to commit to drastic CO2 reductions by the more distant date of 2050. His reluctance stems from a dispute with China. The Chinese have refused to specify a binding reduction target, and the Americans are only willing to make commitments for 2020 if the Chinese do so as well.

The world's two biggest contributors to a warming climate are watching very closely to see what the other will do -- to the detriment of the rest of the world. "If you're talking about 2050, you might as well promise everybody in the world a free lunch then as well," says German Environment Minister Gabriel.

Merkel's adviser on global warming, Hans Joachim Schellnhuber, warns that immediate, large-scale reductions are needed to prevent catastrophic climate change. For Merkel, the fact that Europe is offering a reduction target of up to 30 percent and the German government is even pursuing a 40 percent reduction by 2020 is evidence of "leadership" on their part. "What the Americans are currently offering is simply not enough," says one source close to Merkel.

A Hardline Approach

However, it is unlikely that the chancellor would risk an open dispute with Obama over the issue. She emerged from their meeting in Dresden believing that she has a good relationship with the president.

But the other side apparently has a different take on the matter. A few hours after the encounter between Merkel and Obama, Ben LaBolt, a White House press spokesman, told a colleague about the difficult relationship between the two leaders. "They are not getting any warmer," he said, within earshot of other people standing nearby.

Obama's visits to Dresden and Buchenwald also ruffled some feathers in Germany. The US president's advance team, which had been sent to help prepare for the trip, made a negative impression on the Germans through their coarse language and overbearing behavior. German officials were shouted at, treated like schoolchildren and told to wait their turns.

"We have never experienced such a hardline approach during any visit," says an official from Germany's Foreign Ministry. The Obama team, for its part, is trying to reclaim for itself the mechanisms of the modern media society, arguing that it was important to prevent the Buchenwald visit from being spoiled by images of a smiling and joking president. The spin doctors call it "message control."

As it is, the US president in person is by no means the charming and smiling character many have come to expect from his television appearances. He cultivates a cool style or, as one of the members of the delegation describes it, "an almost unfeeling style."

In pursuing its foreign policy, the new administration in Washington no longer relies solely on high-level meetings and state receptions. In fact, the populations of other countries are now being mobilized to support the goals of the United States to an unprecedented extent. Officials at the White House and the State Department have developed a completely new form of the old concept of "public diplomacy."

In a recent speech, Judith A. McHale, under secretary for public diplomacy in the US State Department, argued that traditional government-to-government relations are no longer sufficient in the 21st century, as a government's room for maneuver greatly depends on the popular mood within the country: "Governments inclined to support US policies will back away if their populations do not trust us."

The new strategy has two components, says McHale. According to one component, the "ground game," it is important to reach the representatives of the respective civil societies and media. That was why Obama spoke privately with Merkel in Dresden for 35 minutes -- before speaking to journalists for 42 minutes.

'We Need Your Help'

The purpose of the other component, the so-called "air game" -- influencing the masses via television, radio and the Internet -- is to disseminate the message. This explains why Obama is so fond of live public appearances, like the one in Buchenwald.

His speeches have recently begun appearing on Facebook, Twitter and various government Web sites. The speech in Cairo, in which Obama issued a message of friendship to the Islamic world, was disseminated around the world in 13 languages. In this strategy, other nations become the setting for Obama's messages.

Although he was speaking in Cairo, his words were addressed to Muslims around the world. And when he visited Buchenwald, his message was not meant for the Germans, but for Jews around the world.

When interacting with his fellow politicians, Obama shows little patience for the complicated rituals of good behavior. According to Thomas Klau from the think tank the European Council on Foreign Relations, the US president is no longer interested in taking part in the "bilateral political and emotional theater with individual European Union leaders, who, in the world of the early 21st century, are moving down to the middle rank of the global hierarchy."

From the American point of view, Germany has no more to offer the 44th president than it did the 43rd president. While the United States is increasing its ground force in Afghanistan by 21,000 soldiers, the German government has only approved an additional 300 troops. None of them will set foot in the hotly contested regions of southern and western Afghanistan, while others stationed there are paying a high price in terms of casualties.

Germany is also on the periphery in Pakistan, where the United States supports the local army with unmanned drones and military advisers.

On Friday, Richard Holbrooke, Obama's envoy to what the US administration has dubbed the world's most dangerous region, made a surprise appearance at the Alfred Herrhausen Society's conference in Washington.

He told the audience about the dramatic situation in the region, especially in Pakistan, and made an emotional appeal to the Europeans to help their US ally. The Americans, he said, have a strategy, but they currently lack the resources to implement it. The United States would normally pay one third of the costs for such international missions, he explained, but in this case they are paying well over half. "We need your help, we need your support and we need your full commitment," he said.

The most tragic aspect of how Europe is dealing with the United States is perhaps the fact that the continent is not successfully making the transition from being the world's problem zone to being a leading global power. During the Cold War, the world's fault lines passed straight through Germany and Berlin, which explained the US's great interest in Europe.

Now China, a rising major power, is pushing itself into the foreground -- to the detriment of Europe, which threatens to become increasingly weak.

When Benjamin Schreer, deputy director of the Berlin branch of the non-profit Aspen Institute, was in Washington recently, he was confronted with anxious questions: Is Europe in the process of disintegrating? What is the significance of the success of extremist parties in the recent European Parliament elections?

The Europeans are still important to the United States, as evidenced by Obama's three visits to the continent in the last 12 months. The Americans value the role played by European reconstruction aid in the bid to establish a stable Palestinian state. They need European troops and aid workers to bring peace to Afghanistan. And, finally, they need the EU's support if Iran's nuclear program is to be contained with sanctions and diplomacy.

But some members of the German cabinet in Berlin have bluntly concluded that, on all of these issues, the Europeans are not seen as real partners with whom joint strategies are developed and decisions made. Instead, the Germans and their neighbors play a role more akin to privileged partners. Washington may listen to them, but it makes its decisions on its own. It doesn't consult the Europeans again until -- at the earliest -- it is time to implement those decisions.

And the Americans want to see results. "Obama is currently making an effort to show an interest in Europe," says Schreer. "But if that doesn't produce results, he'll look for other partners."

RALF BESTE, WOLFGANG REUTER, GREGOR PETER SCHMITZ, CHRISTIAN SCHWÄGERL, GABOR STEINGART

Translated from the German by Christopher Sultan
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