Originally published in The Business Standard on April 10, 2011

Germany has always been at the heart of the European project. A nation that came to represent the continent’s deepest psychological scars, it was also the motor driving European integration. The European Union emerged and developed in the aftermath of the Second World War as the vehicle by which Germany was to be both contained and rehabilitated.

Fast forward to the present day and Europe’s German schizophrenia has taken on a new form. It is Germany, above any other country that is looked to, to provide leadership for the region. But as soon as Berlin begins to take up the reigns, the country is condemned for imposing German interests on Europe.

It is not the happiest of times for Europe, with many of its major states in disarray. Italy’s prime minister is in and out of court on sex-related and corruption charges. Enraged trade unionists are on the rampage across a swathe of countries from Greece to Ireland, protesting austerity measures that are being imposed in the wake of their sovereign debt crises. France is ruled by an increasingly unpopular president, whose hyperactive posturing has done little for the country’s fortunes, domestically or internationally. Spanish youth unemployment is at over 40 per cent, a number higher than in Egypt or Tunisia.

At the centre of these choppy waters, Germany alone stands capable of inspiring confidence and calm. More than 20 years after reunification, the country has healed its historic scars and emerged as successful, democratic and rich. A manufacturing and export powerhouse, Germany has turned its economy around over the last decade to become the money-making dynamo of the EU, riding out the financial recession of 2008 to grow at over 3.5 per cent last year.

With the Second World War receding from memory, Germany once again bestrides Europe. It is Berlin that is looked to, to bail out fiscally weak euro zone countries and without German Chancellor Angela Merkel’s say-so, it is difficult to envisage any new policy directions for the EU.

The idea of Germany having metamorphosed from cautionary tale to exemplary model is a phenomenon that Germans themselves are only just coming to recognise. In a recent article, Cicero, a Berlin monthly, said it was high time for the country, “that bunker of lamentations” with its “indestructible love of woefulness and endemic suspicion of self” to accept “the marvel of what has become of Germans 60 years on.”

But as the new generation of Germans has come to embrace this different reality, the country’s leaders find themselves in a tight spot, juggling its national and European interests. Someone is needed to take charge of Europe, and while Germany is the obvious candidate, it is no longer willing or able to provide the no-strings-attached leadership that other European nations seem to expect of it.

So imagine the confusion and indignation across Europe in recent months, when time and again, Berlin, with one eye on the German electorate, has refused to play ball with its European partners.

Angela Merkel stands accused of exacerbating the severity of the Greece debt crisis by delaying the country’s bail-out by several months. Germany is also the villain of choice for pinning the blame on the continued market volatility around the “peripheral” euro zone countries. If only Germany would agree to a more “robust” role for the EFSM and ESM (involved acronyms for the existent and future bail-out funds for euro zone countries), investors would wipe the furrows off their brows, or so the argument goes.

Merkel’s “imposition” of harsh austerity measures on Ireland and Portugal and demands for greater fiscal discipline in exchange for German cash transfers have been widely condemned as selfish and misguided.

In many ways Germany has emerged as the China of Europe: an export-oriented, manufacturing heavyweight accused of creating economic imbalances and criticised for its trade surplus at the “expense” of the deficits of its neighbours.

And there are now new parallels to China, with Germany’s surprise abstention from the United Nations vote on the imposition of a no-fly zone in Libya. Seen as the result of an ultra-cautious Merkel pandering to domestic populism on the eve of on important regional election — which Merkel’s party ultimately lost — the tone of much of the commentary following this development has been remarkably similar to that usually reserved for China.

Opinion pieces have been lambasting Berlin for shirking its “responsibilities”, given its new weight in the global geopolitical order. Fears are being expressed that from now on this German unilateralism could lead to a situation where, in the future, Berlin will once again throw its weight in with (horror!) China or Brazil or India, rather than automatically sticking with the “West”.

Despite its strong economy, low unemployment, fiscally prudent culture and solid political structures, the coming months will be challenging for Germany. As a country it may be finding its long-fettered national voice once again, but this nationalism must be tempered against the larger European landscape of which Germany is such an integral part.

Berlin needs Europe, both symbolically and also in real terms. Were the euro to collapse, it would be a heavy blow to the German economy. German banks have large exposure to Greece, Spain and Portugal. Again, a Germany at constant odds on foreign policy with its European neighbours will hardly assist the country’s hard-fought-for “normalisation”.

But at the same time, as this “normalisation” becomes an accepted reality, Berlin cannot afford to ignore the wishes of its own population. Given its decentralised political system — the country is in a state of constant regional elections — it will be difficult to avoid a situation where the German voter does not appear to be deciding European policy.

Clearly, not only does Europe have a German “problem” on its hands today, but Germany has a European one, the mutual management of which will be key to the fortunes of both.