An Unsought Crown: Merkel’s Role as World Leader; Germany’s Place as Global Power

In the years after WW2, many observers wondered whether Germany would be permanently relegated to a ‘third world’ status. Some, like U.S. politician Henry Morgenthau, even proposed turning the entire nation into farmland, bereft of technology and industry.

At the war’s end in 1945, Germany entered its Stunde Null - its ‘zero hour,’ a pause in world history, a historic reset, the near-total destruction finally complete, a despair-inspiring level of hardship, but also a chance to start over. Within a decade, the Wirtschaftswunder created one of the quickest economic rebounds in history, as the nation rebuilt itself with dizzying speed.

It was no “economic miracle,” but rather the predictable results of the policies put into place by Germany’s first postwar chancellor, Konrad Adenauer, and his appointee, Ludwig Erhard.

Adenauer and Erhard unleashed the industriousness of the people by cutting tax rates and deregulating the economy. The nation grasped the opportunity with industriousness and creativity.

The blossoming economy, however, had unintended consequences. Germany had no desire to be a world leader. After the trauma of WW2, the Germans rather wanted to attract as little attention from other nations as possible.

But other nations noticed. They noticed the enviable economic growth which the Germans created year after year. They noticed the technological advancements in many industrial sectors. They noticed how leaders like Adenauer built relations with former enemies.

Against its will, Germany was placed into a leadership role among the nations. As German foreign minister Frank-Walter Steinmeier writes,

As Germany’s power has grown, so, too, has the need for the country to explain its foreign policy more clearly. Germany’s recent history is the key to understanding how it sees its place in the world.

Unexpectedly and unintentionally becoming a leader, Germany has been expected to produce answers about global situations.

Germany’s world leadership is not the result of some grand plan to rise above other nations. It was the unintended byproduct of simply being responsible and providing for one’s own future.

Since 1998, I have served my country as a member of four cabinets and as the leader of the parliamentary opposition. Over that time, Germany did not seek its new role on the international stage.

Germany, for example, worked to avoid debt, both in the public sector and the private sector. It worked to keep strong manufacturing and export.

It turns out that by simply being responsible with your own country, you become a leader to the rest of the world: an example, a role-model. Steinmeier continues:

Rather, it emerged as a central player by remaining stable as the world around it changed. As the United States reeled from the effects of the Iraq war and the EU struggled through a series of crises, Germany held its ground.

Europe began to look to German leadership as many of the other EU nations dealt with self-inflicted damage in their own economies.

Money influences diplomatic relationships: in addition to economic guidance, other nations look to Germany to manage international relations, as Steinmeier writes:

It fought its way back from economic difficulty, and it is now taking on the responsibilities befitting the biggest economy in Europe. Germany is also contributing diplomatically to the peaceful resolution of multiple conflicts around the globe: most obviously with Iran and in Ukraine, but also in Colombia, Iraq, Libya, Mali, Syria, and the Balkans. Such actions are forcing Germany to reinterpret the principles that have guided its foreign policy for over half a century. But Germany is a reflective power: even as it adapts, a belief in the importance of restraint, deliberation, and peaceful negotiation will continue to guide its interactions with the rest of the world.

Becoming the chancellor of Germany means become an international diplomatic broker. Angela Merkel, chancellor since 2005, has had to face not only Germany’s challenges, but the world’s as well.

Writing about Chancellor Merkel’s time in office, Alan Crawford and Tony Czuczka note that

Barring an 18-month honeymoon period, Merkel’s time in office came to be defined by a continuous thread of unprecedented turmoil not of her making but which required her to act nonetheless. Her first term was dominated by the U.S. subprime-led banking meltdown and subsequent global recession, which led straight into the crisis in the euro area spreading from Greece that rocked her second term.

Within a few decades, Germany has gone from a postwar wasteland to a world leader. In 1945, the world looked at Germany with pity. In 2016, the world looks to Germany for answers.

In 1945, Germany was not expected to be able even to feed its own citizens. In 2016, Germany is expected to explain, and solve, the planet’s toughest problems.

Germany as a World Power; Merkel as a World Leader

In 1945, at the end of WW2, many observers wondered whether Germany would permanently sink to the level of a ‘third world’ nation. Some leaders, like Henry Morgenthau, proposed that all of Germany be turned into farmland, and be left without technology or industry.

Within a decade, however, Germany had left behind the postwar Stunde Null – a sort of historical pause in the wake of the war’s devastation and simultaneously a historic reset, a chance to start over, the ‘zero hour’ – and progressed toward its Wirtschaftswunder – its ‘economic miracle’ orchestrated by Konrad Adenauer and his appointee, Ludwig Erhard, who cut taxes and deregulated the economy, empowering the Germans to construct one of history’s most dazzling economic recoveries and breathtaking postwar reconstruction.

Eager to keep a low profile and shy about any form of assertiveness, Germany did not seek a leading role among the world’s nations. But the power of its economy, and the creativity and industriousness of its people, placed that role upon a hesitant and even unwilling Germany. Germany’s foreign minister, Frank-Walter Steinmeier, writes:

Over the past two decades, Germany’s global role has undergone a remarkable transformation. Following its peaceful reunification in 1990, Germany was on track to become an economic giant that had little in the way of foreign policy. Today, however, the country is a major European power that attracts praise and criticism in equal measure. This holds true both for Germany’s response to the recent surge of refugees — it welcomed more than one million people last year — and for its handling of the euro crisis.

Just as Germany was reluctant to assume a guiding role in the world, so was its chancellor, Angela Merkel.

Merkel’s style is calm, steady, and reticent. She hardly fits the romanticized notion of a world-historical leader. Yet history demonstrates that such people rarely correspond to this romanticized concept. Alan Crawford and Tony Czuczka write:

A scientist by training whose defining trait is caution, Merkel was forced to look beyond just Germany’s interests and to assume leadership in Europe. Thrust to the fore of policy making, she stepped up, slowly but with growing determination, to defend the euro she saw as the glue holding together the European Union (EU) that had been forged out of the ashes of war to stop the continent ever again descending into conflict. But how did the chancellor who came to office pledging to govern by means of many “small steps” come to take on the role of European savior? And what would the rest of Europe make of her prescription for Europe’s ills?

Germany did not seek a key role among the world’s nations, but by maintaining a consistent record of economic growth and productivity, Germany became a model to which other nations looked for counsel.

Merkel did not seek to be a world leader, but by demonstrating her abilities in global diplomatic relations, domestic policy, and party politics, she displayed the skills which caused other leaders to seek her guidance.

From the banking meltdown of 2008 to the subsequent Greece crisis, from Putin’s adventurism in the Crimean Peninsula to the ‘Brexit’ vote in 2016, Merkel has handled decisions with an unflustered proficiency which causes other world leaders to study her, and which caused the Germans themselves to forgive her for allowing a mass of dubious immigrants, posing as Syrian refugees, into the country.

Without seeking it, wanting it, or trying to get it, Germany and Merkel have obtained roles as a world leaders.

Postwar Economic Thought Develops

Following the end of WW2, Germany was in shambles, a country nearly totally destroyed. Millions of men had died in combat; millions of civilians had died at home from bombing raids; millions of Jewish Germans had died in the horrors of the Holocaust.

Physically, the nation was a wreck. Roads, water pipes, sewage pipes, telephone lines, bridges, railroads, and electrical power lines were greatly damaged in some places, and nonexistent in other places.

Economically, the nation had been ravaged by the viciousness of the Nazi government. High rates of taxation burdened the citizens, a centralized bureaucracy dictated the exact price for everything from bread to butter, wages for any job from surgeon to barber were determined by the central government, and large quantities of money had been printed rapidly.

Hitler’s government had inflicted economic atrocities: innocent civilians, in some cases, starved to death.

At war’s end, Germany began to regain its freedom. The Nazi oppressors were gone, and although the western Allies were at first hesitant, they eventually allowed German citizens to obtain the civil rights which they hadn’t had in over a dozen years.

(Sadly, the one eastern Ally - the USSR - kept Nazi policies in place in the eastern sector of Germany.)

As freedom reappeared in West Germany, so did debate. People finally had the liberty to express opinions. One question was about the future of the German economy.

The aftermath of Hitler’s dictatorship left the Germans facing massive inflation - the quick increase of prices, making it difficult for ordinary people to purchase the necessities of daily life.

Historian Thomas Hazlett describes the exciting intellectual discussions of the era:

Meanwhile, an exciting intellectual debate roared in the academic institutions and councils of government, exploding from its previously suppressed condition in an inflationary blast mirroring the flare-up of prices. Out of the haze of viewpoints emerged two predominant schools of thought: the Social Democrats and the “Freiburg School.”

The Social Democrats, whose party was known as the SPD, favored a return to the Nazi’s “national socialism,” with governmental control over prices and wages. The SPD wanted high taxes and government regulation of the marketplace.

The Freiburger Schule wanted to reduce the government’s control, and let ordinary people make decisions about how much they wanted to pay for products, and about which wages they wanted in their places of work.

It would be the Freiburger Schule which eventually won. Konrad Adenauer, Germany’s first postwar chancellor elected in 1949, appointed Ludwig Erhard, a leader of the Freiburg movement.

Quickly, Erhard set about reducing government regulations. The result was the Wirtschaftswunder - the “economic miracle,” which was no miracle at all, but rather the replicable and predictable laws of economics in action.

Soon, Germany’s economy was one of the strongest in Europe, and one of the strongest in the world, thanks to the concept of deregulation and lower taxes. From the horrors of wartime destruction, modern Germany had been reborn.

Alienation and Identity in Kafka

Kafka lived in a tension between a cultural Judaism and a cultural Christianity in Prague shortly after the turn of the century. The adjective ‘cultural’ is used because this particular tension had little or nothing to do with the theological propositional content of the two faiths.

While there certainly are other tensions which do directly connect to the beliefs and assertions of the two creeds, Kafka’s predicament manifested itself most directly in concrete social situations. Among Kafka’s peers, the two main responses to this tension were either a self-ghettoizing orthodoxy or a modernistic assimilationism.

Like Kafka, author Fritz Mauthner went through the educational system in Prague. Concerning his spiritual formation, Mauthner wrote:

So bestand unser jüdischer Religionsunterricht aus zwei unzusammengehörigen Hälften: aus der moralisierenden Religionslehre, die für die Dümmsten unter uns zu dumm war, und aus einem Praktikum der semitischen Philologie, das manchem gelehrten Orientalisten noch Nüsse aufzuknacken gegeben hätte. Die wir uns längst als jüdische Deutsche fühlten oder als deutsche Juden, gewöhnten uns mit den Jahren daran, an diesem Unterrichte so selten wie möglich teilzunehmen; wir erlangten eine Virtuosität darin, die Religionsstunde zu schwänzen.

While Mauthner accurately describes the situation, his response to it was different than Kafka’s. While Mauthner shrugged it off in favor of agnosticism, Kafka lived in the tension and felt pulled in two directions.

Kafka internalized the conflict. We can see this, e.g., in the text of Die Verwandlung, when three bearded borders rent living space in the Samsa family home.

The long beard is a visual symbol for orthodoxy. The full beard was worn by every, or nearly every, orthodox adult male Jew in Prague, and very few men outside of orthodoxy would have such a full beard in the early 1900s in that city.

The borders are in the same house as Gregor Samsa, just as Kafka lived in the same town with a large orthodox population. But they do not establish any personal relationship with Gregor, and emit an attitude of disapproval toward him, just as Kafka was not included in the orthodox community.

Simultaneously, Kafka felt little kinship with the assimilationists. When his father referred his Bar-Mitzvah as a Confirmation, Kafka was disappointed, as Klaus Wagenbach notes.

The assimilationists sought to minimize any conspicuous visible differences between themselves and the gentile majority in Prague. Assimilationism focused on externals, because externals created the perceptible distinctions between Jews and Gentiles.

Kafka dismissed his father’s assimilationism as purely a business ploy, smoothing relations with Gentile clients, vendors, and coworkers. For Kafka, assimilationism was inauthentic, hypocritical, and insincere.

He therefore found himself in a sort of spiritual “no man’s land.” He belonged neither to orthodoxy nor to assimilationism. He demonstrated some affinity toward Christianity: Christmas is mentioned three times in Die Verwandlung.

But the cultural barriers between Kafka and Christianity were even greater. The actual propositional content of Christianity was less problematic than the cultural trappings in which that content was packaged.

Much of Kafka’s thought was not far from Christian doctrine, as some passages in Betrachtungen über Sünde, Leid, Hoffnung und den wahren Weg show. But it was social barriers, not theological ones, which prevented him from exploring these potential connections.

Kafka was thus alienated from the Judaism which should have been his by birth, and alienated from the Christian doctrines with which he sometimes flirted. Alienation led to diminished identity: if he wasn’t a Jew or a Christian, what was he?

He felt therefore like an ungeheueres Ungeziefer - something which doesn’t belong. This phrase is notoriously complex, and many have commented on it, but it will suffice to note that ungeheuer can mean ‘very large’ and geheuer can mean ‘secure’ - Gregor Samsa was too large to belong in his family home, and was not something secure or safe.

Tax Reform, Currency Reform, and Deregulation: Recipe for an Economic Miracle

To even attempt to reconstruct Germany from the near-total devastation of WW2 was an audacious thought. Millions of civilians had died in bombing raids, millions of young German men had died in combat, and millions of Jewish Germans had died in Hitler’s horrific genocide.

Physically, the nation’s infrastructure was utterly shattered: roads, telephone lines, electrical power lines, water pipes, sewage pipes, bridges, and roads were in many places nonexistent.

The economy had been smothered by Nazi policies of wage control and price control: the government had dictated the exact price of nearly every retail product from bread to bedsheets, and had dictated the exact wage of everyone from teachers to dentists.

Hitler had further damaged the economy by printing huge amounts of money: this was how the Nazi government paid for its war efforts. Further, the German civilians had suffered under crushing taxes.

The victorious western Allies kept these Nazi policies in place at the war’s end in May 1945. In the east, the Soviets established a socialist dictatorship which ended any hopes for personal freedom or individual political liberty.

In the West, the Allies - France, Britain, and the United States - retained Hitler’s economics, in part because some of them wanted to ensure that Germany would remain weak. The French in particular were vindictive. The British wanted to continue the damaging policies because they had not realized how utterly such policies would prevent any form of growth or prosperity. Among the Americans, some agreed simply because they didn’t know what to do, and because they wanted to get along with the other Allies. Some Americans, like Henry Morgenthau, wanted to utterly dismantle Germany’s industrial base, and keep it permanently in the ‘third world’ status.

Eventually, the Allies saw that a strong West Germany was the only effective defense against the Soviet Union. The USSR was ready to expand westward, and West Germany was the first line of defense. A weak West Germany would have been quickly overrun by the Soviets.

Gradually, the Allies turned control of the country over to the Germans. Initially, in 1945, the occupying Allied armies controlled everything in the country. By 1949, the Germans were able to elect their first chancellor, Konrad Adenauer, and operate with near-complete independence. The Allies retained some influence, but let the Germans, for the most part, run their own country.

As the Germans regained control of their own country, they worked to shed the economic policies which had caused so much suffering. Freedom returned to ordinary transactions: merchants were free to set prices, and consumers free to bargain.

The oversupply of currency was reduced. Currency oversupply had created inflationary pressures, which had been kept in check only by wage and price controls. But those controls, in turn, had given rise to widespread black market activity.

Concurrent with this deregulation and currency reform, a third aspect of Germany’s economic rebirth was tax reform, as David Henderson explains:

Along with currency reform and decontrol of prices, the government also cut tax rates. A young economist named Walter Heller, who was then with the U.S. Office of Military Government in Germany and was later to be the chairman of President John F. Kennedy’s Council of Economic Advisers, described the reforms in a 1949 article. To “remove the repressive effect of extremely high rates,” wrote Heller, “Military Government Law No. 64 cut a wide swath across the [West] German tax system at the time of the currency reform.” The corporate income tax rate, which had ranged from 35 percent to 65 percent, was made a flat 50 percent. Although the top rate on individual income remained at 95 percent, it applied only to income above the level of DM 250,000 annually. In 1946, by contrast, the Allies had taxed all income above 60,000 reichsmarks (which translated into about DM 6,000) at 95 percent. For the median-­income German in 1950, with an annual income of a little less than DM 2,400, the marginal tax rate was 18 percent. That same person, had he earned the reichsmark equivalent in 1948, would have been in an 85 percent tax bracket.

Adenauer appointed Ludwig Erhard to address economic policy. Together, Adenauer and Erhard took Germany from its Stunde Null - its ‘zero hour’ and historic reset after the war’s destruction - to its Wirtschaftswunder - its ‘economic miracle’ which is not a violation of natural laws, but merely the predictable and replicable application of the laws of economics.

In less than a decade, Germany went from a likely candidate for permanent ‘third world’ status to the most powerful and quickest-growing economy in Europe, and one of the most significant economies in the world.

The Struggle for Economic Freedom: Postwar Germany

The end of WW2 in May 1945 brought freedom for the Germans. A dozen years of ghastly atrocities inflicted by the Nazi government were over. The people would finally be able to experience liberty.

Or so it seemed.

But freedom didn’t arrive easily or quickly.

The eastern portion of Germany was swallowed up into a Soviet socialist dictatorship. Freedom wouldn’t arrive for another 45 years in that place.

The western portion was governed by occupying military powers: French, English, and American. Although these western Allies represented liberty, they kept Hitler’s economic policies in place. These were the policies which enslaved the people and fueled the horrors of the Holocaust.

Nazi economics were based on high rates of taxation, government control of wages and prices, and a huge money supply. The Nazi government dictated the retail prices of everything from bread to shirts, and it dictated the wages of everyone from taxicab drivers to engineers. There were no free choices for consumers.

To pay for its war efforts, the Nazi government printed huge amounts of money. Oversupply of money causes hyperinflation. The Nazis avoided hyperinflation by strict price controls, which led, however, to shortages of retail goods.

The occupying Allies kept this system in place for several years after the war’s end. Historian Thomas Hazlett writes:

The Allies were thorough in their regulation of Germany. Censorship was so tight, for example, that James T. Farrell’s popular novel Studs Lonigan was declared contraband. The victors attempted to administer the economy through a patchwork assortment of price regulations, allocation details, and rationing. In the fall of 1946 the mechanism had reached bankruptcy, the officially rationed food allotment being under 1,500 calories per person per day. Ludwig Erhard was to report: “All attempts at mending matters were frustrated, not only by the prevailing conditions of devastation, exhaustion and disruption, but also by the supposed experts, in and outside Germany, clinging tenaciously to their reliance on controls. The people worked on doggedly, tormented by hunger and exasperated by zonal restrictions, corruption and the black market.”

The Allies gradually allowed the Germans to form their own civilian government. Ludwig Erhard and others persuaded the Allies to let the Germans form their own economic policies.

In 1948, Erhard oversaw a radical currency reform, in which the amount of money in circulation was significantly reduced. At the same time, Erhard phased out wage and price controls.

This was the turning point which allowed Germany to rescue itself from become a permanent member of the ‘third world’ group of nations. This was Stunde Null - the ‘zero hour’ of a massive economic reset. This was the beginning of the Wirtschaftswunder, which was not an ‘economic miracle,’ but rather the predictable and replicable results of economic laws.

In a single decade, Germany would rise to be the strongest and largest economy in Europe, and one of the most powerful economies in the world.

Germany's Big Choice: Postwar Economics

After WW2 ended in 1945, the USSR controlled the eastern part of Germany, and imposed there a socialist dictatorship. The western Allies - England, France, and the United States - administered the western side of the country.

Over the next several years, the western Allies gradually turned control over the Germans, who began to govern themselves. In 1947 and 1948, the Germans were making important decisions about economic policy, but the Allies still had the final power to approve or reject any legislation.

One central question faced the Germans: should they continue the economic policy of control, which the Nazis had imposed on the them in the 1930s and which the Allies had continued to impose at war’s end? This policy meant that the government dictated the retail price of everything from shoelaces to paint, and dictated the wages of everyone from the gardener to the surgeon.

This policy also included high rates of taxation. The combined effects of price controls, wage controls, and high taxes had inflicted misery on the Germans for over a decade.

Ludwig Erhard was an economist who’d opposed Hitler’s government during the war, and now, in peacetime, wanted to free people from the last vestiges of Nazi oppression. The Germans debated among themselves about how to move forward, as David Henderson writes:

Ludwig Erhard won the debate. Because the Allies wanted non-­Nazis in the new German government, Erhard, whose anti-­Nazi views were clear (he had refused to join the Nazi Association of University Teachers), was appointed Bavarian minister of finance in 1945. In 1947 he became the director of the bizonal Office of Economic Opportunity and, in that capacity, advised U.S. General Lucius D. Clay, military governor of the U.S. zone. After the Soviets withdrew from the Allied Control Authority, Clay, along with his French and British counterparts, undertook a currency reform on Sunday, June 20, 1948. The basic idea was to substitute a much smaller number of deutsche marks (DM), the new legal currency, for reichsmarks. The money supply would thus contract substantially so that even at the controlled prices, now stated in deutsche marks, there would be fewer shortages. The currency reform was highly complex, with many people taking a substantial reduction in their net wealth. The net result was about a 93 percent contraction in the money supply.

The debate about the money supply had been a technical one: until 1945, the Nazi government had financed its aggression by printing currency which it used to pay for war supplies. This massive flood of currency would have led to hyperinflation, but the Nazis prevented that by using strict price controls. The price controls tamed inflation, but led instead to extreme shortages.

So, if money supply was the first part of the debate, price controls were the second part. Both were important, but price controls were more easily seen as a direct attack on personal freedom. The German people had been tormented by over a decade of totalitarian controls in which the government dictated the prices on all retail goods.

Ludwig Erhard saw deregulation of the market not only as an economic step toward growth, prosperity, and the rebuilding of a nation destroyed by war, but also as a step toward personal freedom and individual liberty. Consumers were free to go to different stores, compare different products at different prices, and make a choice.

So it was simultaneously that the German government contracted the money supply while deregulating its markets:

On that same Sunday the German Bizonal Economic Council adopted, at the urging of Ludwig Erhard and against the opposition of its Social Democratic members, a price decontrol ordinance that allowed and encouraged Erhard to eliminate price controls.

That was merely the beginning. The money supply was contracted, for the most part, all at once. But the deregulation went on, bit by bit, in different sectors, on wholesale and retails prices.

At the same time, Erhard also began advocating for the strategy of lowering taxes. When Konrad Adenauer was elected to be Germany’s first chancellor in 1949, he would appoint Erhard to oversee economic policy. David Henderson notes that

Erhard spent the summer de-­Nazifying the West German economy. From June through August 1948, wrote Fred Klopstock, an economist at the Federal Reserve Bank of New York, “directive followed directive removing price, allocation, and rationing regulations.” Vegetables, fruit, eggs, and almost all manufactured goods were freed of controls. Ceiling prices on many other goods were raised substantially, and many remaining controls were no longer enforced. Erhard’s motto could have been: “Don’t just sit there; undo something.”

In 1948, Germany faced a monumental choice: continue the oppressive fascist economic system of high taxes and government-controlled prices, or deregulate the economy and create a free market. Because they chose the path of freedom, Germans enjoyed an amazing level of prosperity only a few years later.

Because they went from a ruined nation to a prosperous economy, and because they were not permanently cast onto the heap of ‘third-world’ nations, history books routinely refer to this as the Wirtschaftswunder - the ‘economic miracle’ - which was, in fact, no miracle at all, but merely the predictable and replicable results of the laws of economics.