Germany’s Policy Dilemma – How Economic Interests Question Berlin’s Foreign Policy

Thirty years after its reunification, Germany finds itself back at the crossroads. Geographically positioned in the heart of the European continent, it had been the main stage for decades of bipolar conflict in the post-WWII period. Today, Germany’s role is dissimilar, and the nation’s faith is no longer in the hands of Washington DC or Moscow but in its own. Being part of an increasingly integrated European Union (EU) and a growing North Atlantic Treaty Organization (NATO), it seeks to redefine its role within the supranational community and the transatlantic security alliance as well as to take a stake in defining the organizations’ future paths. Also, given Germany’s economic accomplishment and growing capabilities, its partners expect higher commitment and additional burden-taking – tasks that Merkel’s administration at least partly was willing to take over the past years. While Berlin is eager to promote multilateral interests and thereby seeks to sustain the liberal international order, it nevertheless increasingly sees its domestic agenda confronted by partners and allies.

Particularly the United States under its current Presidency played a dedicate role over the last months. What had been Berlin’s closest non-European partner for decades became a tough companion under President Trump. Last year, his administration reinforced the threat to impose trade sanctions on European car manufactures, which would resemble a declaration of war to the ‘automotive nation’ of Germany. Previously, the US President raised doubts about the country’s willingness to cooperate in security and continuously condemns Germany for not fulfilling its defense spending obligations within the agreed NATO framework. Such signals question the quality and continuity of the transatlantic relationship dramatically and arguably tear them down back to 2003 levels when Germany opposed the intervention in Iraq.

However, these threats and accusations do not come out of nowhere and are not (only) rooted in individual opposition of Trump vis-à-vis free-trading Germany. Increasingly, Eurasian states outside the supranational community seek economic partnerships with Germany, while some of them come at the risk of allies. Not only the US but also Eastern neighbors are worried about the geopolitical implications of Nord Stream 2, the Russian expansion project that will increase the capacity of the offshore natural gas pipeline Nord Stream. The new pipeline system will circumvent land connections across the Baltic States or Ukraine and directly transport Russian natural gas via the Baltic Sea to Germany. Moreover, the US does not like the idea of letting Huawei participate in the build-up of Germany’s 5G infrastructure, a visibly critical feature of information technology. The implicit geopolitical concerns of the US and other continental allies are obvious, yet the German government keeps on pronouncing that domestic economic interests and foreign policy are two different pairs of shoes that do not contradict another.

But is this a credible approach? The answer certainly depends on a critical assessment of various subordinated issues and interests. How serious are the implications of economic cooperation with Moscow in times of Russian interference in Western elections and the illegal annexation of the Crimean Peninsula? Would it be trouble-free to let a Chinese technology group operate sensible information technology infrastructure despite ongoing allegations of intellectual property (IP) theft and human rights violations? Overall, the situation seems to be more complex than the federal government claims. In order to shed a light on the policy conflict, this essay seeks to examine Germany’s foreign policy and, furthermore, assess the two cases of Nord Stream 2 and Huawei with the diverging interests of actors involved. An assessment of economic and geopolitical aspects will ultimately provide a detailed understanding of the situation and aim to give a policy recommendation to the Chancellery.

Germany’s foreign policy – A swinging pendulum

After the fall of the Iron Curtain, which did not only reunite Germany but seal the Soviet demise, the whole of Germany joined the Western alliances of NATO and what a few years later officially became the EU. The Soviet evil had been defeated and millions of Eastern-Germans had been liberated from an undemocratic regime built on political oppression and a planned economy that only favored a small elite. Capitalism won, socialism lost. Such descriptions of the events – which according to Francis Fukuyama marked the ‘end of history’ – dominated both national and international debates for a while and Germany had seemingly found its final destiny in the West.

However, over the past two decades, German foreign policy has been steered into different directions. Some leaders held sympathetic views about Russia; such as former Chancellor Gerhard Schröder (SPD) who sought to collaborate with the Russian President Vladimir Putin to counterbalance the policies of US President George W. Bush and now spends his twilight years as a board member of Gazprom, the Russian state-owned energy firm. Now-President Walter Steinmeier and Sigmar Gabriel, two former foreign ministers and social-democratic comrades, held similar views based on the continuation of the Neue Ostpolitik, the cooperative foreign policy approach of the social-liberal coalition in the 1970s towards the Soviet Union based on the maxim ‘change through rapprochement’.

Christian-democratic Chancellor Angela Merkel, in contrast, is certainly a ‘Westerner’. After growing up in the German Democratic Republic (GDR), she swiftly appreciated the cultural and political system of the West as a strong contrast to what she experienced during her youth. Albeit regularly using her knowledge of the Russian language for exchange with Putin, who equally excels in speaking German, she has been preferring to build rapport with Western leaders. The same attitude holds for the new foreign minister, Heiko Maas, who – by supposedly breaking the social-democratic tradition – decisively prefers West over East and sees Moscow’s current foreign policies very critical. Since the illegal annexation of Crimea, which Germany alongside its Western partners definitively condemns, the dialogue with Russia altered its tone.

However, this does not mean that Germany is now closer to American policies than before. In fact, the relationship with the largest non-European ally experienced a pivotal change after the inauguration of Donald J. Trump. The former real estate mogul already relied on anti-Germany propaganda during his campaign and strictly opposes multilateralism, the international order that Germans learned to love after decades and centuries of international conflict and dispute. After eight years of close cooperation with a US President who was supposedly more popular in Germany than at home, the transatlantic collaboration experienced a rough modification. Last summer, Heiko Maas articulated the new transatlantic strategy of the Foreign Office in a Handelsblatt article: He stated that Berlin would aim at building a ‘balanced partnership’ with the US, based on sharing responsibility, boosting the multilateral order, and keeping all channels open.

Such a statement could not have been imaginable ten or twenty years ago. The federal republic never dared to assume such a position vis-à-vis its ‘big brother’, who had the key stake in rebuilding the country after the defeat and destruction of WWII, who safeguarded Western Germany’s security with nuclear deterrence during the Cold War, and who contributed to the reunification like no other nation. The statement clearly emphasizes a new direction. Maas does not seek to imply a bilateral balance between Berlin and DC but desires a closing of ranks with its partners in the EU, which he envisions to become an essential pillar for the liberal international order. Therefore, a joint foreign policy would imply a cohesive approach by all member states, reinforcing common interests and subordinating individual aspirations.

So, does Germany itself follow such an agenda? Especially the Nord Stream 2 case has been criticized as ignoring supranational interests and harming European partners. At the same time, the term ‘keeping all channels open’ in Maas’s contribution leaves space for interpretation. Could Egon Bahr’s Neue Ostpolitik eventually experience a successful comeback? Both Nord Stream 2 and the current discussion concerning Huawei’s stake in Germany’s telecommunications infrastructure indicate such tendencies, or at least, demonstrate an incoherent grand strategy that puts economic interests at the fore and thus subordinates strategic alliance positions.

Nord Stream 2 – New gas, new dependencies?

Nord Stream 2 – as the number indicates – is not the first Russian natural gas-pipeline construct that connects the Russian Narwa Bay and Mecklenburg-Western Pomerania, a German state in the North East of the federal republic, next to Poland and the Baltic Sea. In order to complement the existing eight-year-old pipeline Nord Stream, which already runs at full capacity of 55 billion cubic meters per year and can no longer fully satisfy market demand, the € 9.5 billion expensive construction project concerning two additional pipelines is planned to be finished within the next few months. According to Gazprom, the key shareholder in the operation, the new tubes will ensure a secure and reliable energy supply for Europe. Since the majority of nuclear power plants is gradually switched off and lignite plants become the core target of environmental policies, European countries increasingly import gas from Russia, Azerbaijan, and Qatar. However, this is where the dispute begins.

While the federal government of Germany claims that the new pipelines are necessary to safeguard affordable energy prices, members of the opposition parties – alongside with several European neighbors and partners – argue against it. Rather than importing natural gas from non-European states, they contend, Germany should continue the construction of renewable energy sources based on the policy course of the Energiewende, i.e., the domestic transition from nuclear and lignite energy to sustainable foundations. The opposition party Alliance 90/The Greens, for example, claims that Nord Stream 2 is simply not necessary in economic terms and rather than gambling on small price benefits for final consumers, the federal government should be aware of the increased dependency towards Russia and the geopolitical implications for the whole of Europe. But what are those implications?

On one hand, Eastern European countries that feature land connections for Russian-European gas pipelines would be bypassed as the pipeline would directly cross the Baltic Sea and reach Germany. So far, Poland, Belarus, and Ukraine imposed charges on gas transports across their territory. With another underwater channel, these states would lose significant income and relevance for Russia. In theory, Moscow could then literally turn off the gas for Poland and Ukraine without harming Germany. In the light of the current situation in Eastern Ukraine and the ongoing disputes between Kyiv and Moscow, this does not seem to benefit the Ukrainians, which Germany at least diplomatically seeks to support in safeguarding their sovereignty. Concerning Poland’s current nationalistic and EU-skeptical policies, one may expect additional turmoil in Warsaw and an increase in negative perceptions concerning the EU and Germany. In addition, South-Eastern European states such as Greece and Bulgaria are insulted by Germany’s two-faced approach: In 2015, these states had discarded plans for an alternative project, South Stream, in the light of sanctions against Russia.

Brussels is perceptibly aware of these implications and dislikes the idea of having a Russian state-owned enterprise, Gazprom, operate the pipelines and deliver natural gas to the European energy network. Hence, the European Commission tried to force Berlin to halt the project by introducing a new energy regulation in the beginning of 2019. However, Germany sought the support of France in proposing a compromise, which was eventually adopted. With this alternative approach, the regulatory power concerning gas imports is subordinated to the national level. Consequently, the state in which the imported gas joins the EU network from now on has the say over regulatory criteria. As pointed out earlier, this is Germany in the case of Nord Stream 2. If the negotiation had failed, it would have been difficult to continue the Nord Stream 2 project. All member states with a corresponding presence in the Baltic Sea could then have influenced the future of the project, e.g. Denmark, Finland, and Estonia, which see the pipeline just as critical as their follow European countries in the South-East.

Though, Germany’s European partners are not the only ones who condemn the construction. Since the initiation of the project, Germany’s key non-European ally, the United States, disliked the project. Rather than increasing its energy dependency on Russia, Germany should import gas from its allies. Besides this geopolitical claim, Washington DC also has an economic interest: The US increasingly delivers liquefied natural gas (LNG) to the European continent and wants their European gas exports to grow in the future – while the German government is generally open for a new energy cooperation with the US, Nord Stream 2 unsurprisingly hazards this vision.

US diplomats first sought to consult the German government behind closed doors but now the approach has shifted to aggressive, public statements of the President and his representative in Berlin. Beyond the conventional, yet offensive Twitter posts of Donald Trump, former Berlin-based US ambassador Richard Grenell wrote threatening letters to German firms involved in the Nord Stream 2 constructions as well as to the Federal Minister for Economic Affairs and Energy, Peter Altmaier. The German government opposed the allegations in their usual calm manner. However, economic interest groups and key lobbyists aggravated their arguments. The Chairman of the German Chamber of Commerce Abroad (AHK) in Russia, Matthias Schepp stated that ‘Germany is not the 51st state of the US’ and that Berlin should not listen to third-country dictates.

The situation gets even more complex, considering that Gazprom is not building the pipeline itself. Five European utility firms are involved in the project, such as OVM from Austria, the Dutch giant Shell, the French, state-backed energy supplier Engie, as well as the two German firms Uniper (previously a subsidiary of Eon) and Wintershall, a subsidiary of BASF. Uniper, for example, has invested € 950 million into the project for which it receives an interest-based payoff whereby a large share of the payoff has already been realized according to the firm’s spokesman. As of today, there seems to be no doubt that Nord Stream 2 will be stopped before its planned start. The EU agreement concerning the national regulatory authority has dismissed potential involvement of other states and for now, Germany holds the trump card.

The 5G debate – Chinese technology for the ‘country of inventors’?

Another contemporary case that is widely debated among policymakers and analysts around the globe is the set-up of 5G infrastructure, which will allow for the introduction of the latest iteration of world wide web that has been termed a ‘quantum leap’ of internet velocity. Indeed, the new technology streams data roughly a hundred times faster than existing 4G networks, thereby being able to turn the famous aspirations of smart cities and autonomous cars into reality. Germany has commenced the public auction for 5G spectrum mid-March and the four largest telecommunications providers, Deutsche Telekom, Vodafone, Telefónica, and 1&1 Drillisch have been competing for slices of the latest internet pie.

While the telco firms will operate the infrastructure, they rely on external technology providers who have the capacity to build up the network. The world leader in the development of 5G networks and equipment is Huawei, a Chinese tech giant who currently ranks third in the German smartphone market with a 14 percent market (in February 2019). Moreover, Huawei already started cooperations with the German public sector: the cities of Gelsenkirchen and Duisburg have closed agreements to implement smart city initiatives with Huawei technology. Also, the national railway firm Deutsche Bahn closed a deal with Huawei including the expansion and digitization of its communications network. However, Huawei has been accused of cooperating with the Chinese state in espionage activities, a claim that becomes serious in the light of sensitive public-private infrastructure such as mobile internet.

In fact, Australia, New Zealand, and the US have already banned Chinese technology suppliers from involvement in the 5G networks based on national security reasons. While the three states ultimately accepted to risk short- and eventually long-term technological shortcomings – considering that Huawei & Co. are at the forefront of technological progress – they took decisive action against the allegations of intelligence cooperation with the Chinese government. Although Huawei is a private, not a state-owned corporation, the risk of espionage is inherently given as Beijing introduced an intelligence law in 2017, which obliges all individuals and organizations to cooperate in intelligence gathering. Hence, it is questionable whether Huawei may ultimately be forced to spy upon customers of its infrastructure.

In February 2019, Chancellor Merkel proposed the signing of ‘no-spying agreements’ if the Chinese were interested in participating in the introduction of 5G in Germany. This supposedly naïve approach (considering espionage activities of the NSA on German individuals and even Merkel’s own smartphone in the past) came to the entertainment of many foreign observers and domestic authorities realized that such agreements would simply not be enough. Thus, the German federal agency for security of information technology (BSI) complemented the idea with additional vetting procedures that include analyses and certification processes for all connected hard- and software solutions, including updates.

In contrast to Nord Stream 2, which is, for now, an exclusively German polity, the whole of Europe alongside industrial nations around the world debates the introduction of 5G. Germany’s closest European partner France favors the strategy of letting Huawei participate in parts of the construction without leaving them a significant majority of the network. However, there is no cohesive European approach and every country follows separate plans. In Spring 2019, the British Defense Minister, Gavin Williamson, got sacked as he allegedly leaked confidential information concerning the plan to limit access for Huawei in building up UK’s 5G network. Williamson denied any accusations concerning the leak of information from the National Security Council meeting but May’s rigorous reaction demonstrated the high relevance of the issue.

Few countries dare to jeopardize relations with China, which has developed towards a major trading partner for several European countries, of which Germany is the most significant one for China. In fact, Germany is nowadays the world’s largest recipient of Chinese FDI. Moreover, Germany (together with the Netherlands, Greece, and Italy) marks the European terminus of the Chinese railway belt, the land route of China’s Belt and Road Initiative (BRI). Although Germany is not dependent on infrastructure investments, it benefits from the project in economic terms. For example, the Ruhr region, which has seen an economic downturn with the demise of mines and the partial phase-out of metal industries, now experiences new growth with novel trade connections to Chinese metropolises.

On the other side of the coin, what is the alternative to Chinese technology? In fact, the main competitor of Huawei in the 5G debate, the American technology firm Cisco, had been involved in the NSA espionage scandals that lastingly impaired trust towards the Americans. Nevertheless, the United States is currently the most vocal critic of Huawei in the 5G debate. Lately, the United States has been increasing bilateral pressure on its European partners, as it perceives Huawei as a severe security threat (which, as previously mentioned, led to the expulsion of the tech firm in the American 5G venture). Based on official diplomatic jargon employed, the US is concerned that Beijing would spy on its key allies and thereby damage the integrity and security of the transatlantic cooperation. Ambassador Richard Grenell even threatened that the US will restrict the sharing of intelligence if Germany uses Huawei technology. However, European detractors could potentially say that Washington DC is afraid of losing its espionage monopoly on Germany and other European nations.

Besides technology firms of the world’s two largest economies, Europe itself features some 5G providers. Notably, the two Scandinavian companies Nokia (from Finland) and Ericsson (from Sweden) have been named alternatives in the prestigious infrastructure project. While espionage certainly is a less critical topic with a provider from a fellow NATO or EU member state, respectively, the two providers seemingly do not stand a chance against Huawei. The Chinese firm is claimed to be more innovative due to the majority of 5G patents which it holds, a circumstance that observers described with a two-year technology advantage. Moreover, it is 30 percent less expensive than its European competitors, which is a large difference considering the enormous scale of the project.

Scenarios for potential action – Quo vadis Germania?

The two cases highlight a sensitive dilemma for Germany and question the future path of the federal republic. Which factors will drive Berlin’s policies in the future? Will it be purely domestic economic interests, thereby seeking new partnerships with China and Russia? Or will it rather be supranational preferences in line with a joint EU foreign policy approach or even NATO interests in the field security affairs? In order to understand the diversity of possible foreign policy directions, two distinct scenarios are created in the following, based on the geographic direction, i.e., the conceptual orientation of Berlin’s future.

Option A: ‘Go East’

While this option may sound a bit obscure or eventually upsetting for many allies, it shall not be interpreted in a wrong way. Germany certainly sees its future within the European Union and NATO; however, it may seek individual moves in new partnerships with Eurasian partners. By the end of the day, it is not only about making money with the East but securing sound relations with key powers of today’s and especially tomorrow’s world. Some historians have been arguing for Germany to take a diplomatic role between the East and the West, as a country that has adopted Western values such as liberal democracy but equally holds traditionally Eastern characteristics such as being an ‘etatist’ society driven by the state (as opposed to the libertarian ‘night-watchman’ state of the US or UK). No other Western country plays a relevant decisive role in EU and NATO agenda-setting while keeping sound relations with Eastern states.

Increasing economic interdependency inherently brings peace rather than conflict, and in a future that is coined by multilateralism and peaceful diplomacy, instead of unilateral protectionism, an easing of West-East ties could be envisioned. The Neue Ostpolitik could eventually make a comeback if it was aligned with the most relevant values and vital interests of NATO and the EU. The ‘change through rapprochement’ policy could, furthermore, become a decisive approach to solve today’s most pressing issues in a multilateral manner. If the international community wants to stand a chance in fighting climate change, China and Russia, two of the largest polluters on Earth, cannot be ignored but must be included in constructive talks. The same holds for improving human rights, gender equality, and many other issues. Besides multilateral efforts via international organizations, close bilateral ties between East and West can, therefore, be a supportive factor.

Option B: ‘Stay West’

As a strict alternative to the open attitude towards the East, Germany could take a closer stand with its allies and restrict from further cooperation. As the analysis of the two cases has shown, plenty of reasons would – from a contemporary perspective – favor Western energy resources and goods over ones stemming from Russia and China. Rather than becoming more liberal and peaceful, Russia became more aggressive and autocratic. No doubt, one may expect that Russia will continue pressuring Kyiv and interfering in Ukrainian polity rather than raising a white flag and respecting the sovereignty of its European neighbor(s). China, on the other hand, evidently stole large amounts of intellectual property from Western enterprises and denies burden-free market entries for foreign economies while investing in key industries of the West. Also, Beijing increasingly seeks global status based on a regional hegemony which threatens the peace in the area.

Consequently, Germany and its fellow partners could turn the tides by imposing similar roles, e.g. on restricted market access – just as the US, Australia, and New Zealand did it in the case of 5G infrastructure. In order to secure a truly independent 5G network, the European Commission could take a decisive role, e.g. in opting for subsidizing research and development efforts of Nokia and Ericsson with European funds. In the light of energy dependency, where a simple ‘turn off’ of gas pipelines does not seem to be a credible policy, Germany should promote a more multilateral system and therefore support the European import of US-LNG to counterbalance potential dependency from the East and symbol unity and attachment to the United States. In the best case and long-run vision, Europe should increasingly seek to self-supply its demand with reliable and risk-free sources, thereby promoting energy autonomy.

Conclusion

In order to follow either of the two outlined paths, Germany’s grand coalition must first get together to define a cohesive grand strategy. As of today, the SPD-led Foreign Office keeps a critical perspective of the East, whereas the CDU-driven Ministry of Economic Affairs and Energy sees Russia and China as close and important partners. In the light of current dynamics, it is quite probable that Berlin will follow none of the two approaches but go for a middle way. No doubt, Russian oil and Chinese technology ultimately threaten Germany’s foreign policy goals, at least those outlined by Heiko Maas and his fellow foreign policy makers lately.

However, it is crucial to keep a realistic perspective: the majority of any exports leads to dependencies and Germany, the export nation, is dependent on global trade, particularly in the field of automotive and high-tech. If China would – in a conflict scenario – switch off German mobile internet (or turn off gas in the case of Russia), Germany could potentially switch off its cars on Chinese roads, which make up at least twenty percent of China’s automotive market. Going completely risk-free will be a difficult challenge that would hazard conflicting, yet elementary interests. Nevertheless, a realistic twenty-first century Ostpolitik must be in line with an overarching grand strategy that promotes multilateral engagement and includes interests of key allies and partners.

The case of Nord Stream 2, which has scrupulously ignored vital security interests of several Eastern European states, may ultimately become a role-model for what may go wrong. Both Russia and China undoubtedly have vested interests in Eastern Europe and the European Union must necessarily focus on this region and promote independence from Eastern power politics. The Three-Seas Initiative, a flexible policy platform on the presidential level of Eastern European states, is a step into the right direction and Germany should endorse such initiatives. Moreover, Germany should financially support a modernization of Ukrainian transit pipelines to keep them competitive and increase economic relevance towards East and West.

The Huawei case, on the other hand, demonstrates that rather than following individual, wishy-washy approaches, members of the EU must stick together and define joint security visions and strategies. Supranational cooperation cannot solely be restricted to few, selected domains. If the EU, for example, agrees to further strive for joint military systems and equipment, it should also consider the critical infrastructure of the private life that may potentially be targeted by cyber-attacks. Finding the right amount of commencing additional EU-led initiatives and leaving sensitive policies to domestic authorities has become Brussel’s key challenge in the light of rising EU-skepticism and nationalistic agendas.

What regards to Germany, the keyword for its future strategy is credibility. In her former position as Minister of Defense, Now-President of the European Commission Ursula von der Leyen summarized Germany’s (military) vision as ‘becoming more European yet staying transatlantic’. I personally sympathize with this vision, which now needs further actions to prove it is meant for real. Germany’s domestic interests and ideas for a foreign policy must be aligned and orchestrated within a grand strategy that is to be defined. The idea of becoming a larger version of Switzerland who does business with all sides and avoids dispute will not be an option. Germany’s fate is existentially connected with the one of Europe and it must stand for the supranational idea and put joint interests at the fore – even if this means sacrificing some domestic gains.

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