The Pope's Revealing Gift to Merkel and the Future of Europe

German Chancellor Merkel visited the Vatican over the weekend.  Consistent with the diplomatic practice, they exchanged gifts.  The Chancellor gave to the Pope a Bach CD and a donation for refugee children.   Pope Francis gave Merkel a medal with this image on it.  It is a picture of St.Martin giving his coat to the poor. 

The perfunctory exchange of gifts among diplomats often has an underlying subtext.  One such example, was when UK Prime Minister gave French President Mitterrand a copy of the Dicken's Tale of Two Cities, which is somewhat critical of the French Revolution.  In response to the perceived slight, Mitterrand was said to surround Thatcher by representatives from francophone Africa on a outing to the Opera. 

The benign interpretation of the Pope's gift to Merkel is a gentle reminder that world leaders have a responsibility to help the world's poor.  A more pointed interpretation is about the generosity of the spirit in Europe as well.  

A few years ago,  the Polish foreign minister was quoted acknowledging that he might be the first Polish foreign minister in history to say this, but he was more fearful of German inaction than German action.  This captured a shared sense of the greater need for enlightened German leadership.  

Germany acts to defend its national interest.  It acts like the first among equals.  It has been a clear defender of the rights and prerogatives of creditors.  What is needed is for Germany to act more like a hegemon.  At times this requires the sacrifice of short-term interest for the sake of systemic and strategic needs. 

In term of a historical parallel, perhaps Germany is acting like the US did after WWI.  It proposed a League of Nations (one of Wilson's Fourteen Points), but ultimately the US Congress was not prepared to see its sovereignty eroded.  It was not so much out isolationism, as it is often portrayed, but rather the decision was driven by the desire to preserve the freedom of unilateral action.    The US did not have the institutional capacity to be the world's leader.  

The Pope's gift to Merkel may a broader reminder of the obligations of leaders.  The particular economic problem in the euro zone is that the savers in the creditor countries are no longer recycling their surplus to the debtors.   Various measures by the ECB have been aimed at reanimating this process, including the purchase of sovereign bonds that starts next month.   However, the fiscal consolidation in the periphery has not been blunted by fresh stimulus from the core. 

To contrary, Germany's reported a record trade surplus in 2014 of nearly 220 bln euros or almost 6% of GDP.   German exports rose 7.2% in 2014, while imports rose 2.4%.  In a world that suffers from the lack of aggregate demand, Germany was part of the problem, not the solution.   

Without fiscal union or a political union, the needs stronger German leadership is all the more urgent.  Ironically, German Chancellor Merkel is widely regarded as among the most skillful leaders of our generation.  She is a tactician par excellence, yet she seems to lack the vision of her mentor former Chancellor Kohl, and we are all poorer because of it.