Merkel appears isolated on key EU policies

By Stephen Castle and James Kanter
Published: December 10, 2008

BRUSSELS: Germany's shift from reliable paymaster to a surprisingly recalcitrant partner has cast doubt on chances for success at a European Union summit opening Thursday, where expensive but contentious measures to combat recession and climate change top the agenda.
With the country that has long been at the heart of EU affairs increasingly defending its own corner, the European Commission president, José Manuel Barroso, found himself in the awkward position of having to make a formal denial that Berlin is now isolated within the EU.
"We need Germany and Germany needs Europe," he said Tuesday. Tellingly, the phrase is similar to language often used to implore skeptical countries, like Britain, to engage more with the EU.
At the two-day summit meeting, Chancellor Angela Merkel has made it clear that she will seek to shield Germany's heavy industry - and around 90 percent of EU industrial producers - from proposals to combat climate change, unless other countries outside Europe agree to similar moves. Berlin is also urging caution over a planned €200 billion, or $260 billion, stimulus package for the European economy.
Though for years the Germans bankrolled initiatives approved at EU summit meetings, this time they fear having to pick up the check for easing the burden of CO2 reduction measures on poorer, eastern, countries like Poland.

Though Merkel's leadership within the EU was widely praised only last year, she now seems happy to present herself as "Madame Non," as she's been dubbed by the French media.
Germany's more assertive stance, especially on climate change, derives from the structure of its economy which, Barroso pointed out, has a larger industrial sector than Britain and France combined.
But analysts said it also reflected evolving German attitudes to an EU that has enlarged over the decades from a tight unit of six nations, steered by Paris and Berlin, to a looser alliance of 27.
Charles Grant, director of the Center for European Reform in London, believes this has tested the affection of a new generation of politicians for the EU. "Both the Germans and the French," Grant said, "have discovered that, after its enlargement, the EU has really changed. If they don't run the EU, they won't support it in the same way, because they don't see it as the projection of their interests in the way they did."
Thomas Klau, senior analyst at the European Council on Foreign Relations, noted that Germany has resisted pressure from other member states in the past. What is new, however, "is Germany is giving the impression of not being in the vanguard of devising solutions after a major crisis, and not feeling responsibility for demonstrating that the EU can act as one."
At the Brussels summit meeting, Germany is particularly concerned about a French proposal that would offer countries like Poland free permits to produce carbon when generating electricity until late in the next decade. That proposal would award big benefits to Eastern European power producers, creating a competitive disadvantage for other coal-reliant power producers in Western Europe.
Tensions also are running high within Germany over the impact of the EU's climate plans. RWE, a German electricity utility that is the largest CO2 polluter in Europe, renewed protests this week against an EU proposal that would force power generators to buy 100 percent of their permits to generate electricity beginning in 2013.
Over dinner Tuesday night in Poznan, Poland, where global climate change discussions are under way, Johannes Lambertz, the chief executive of RWE Power, warned that Germany's future as an industrial power was at stake if Europe adopted the EU package without substantial modifications.
Speaking in the presence of the German environment minister, Sigmar Gabriel, Lambertz said its investments "must also offer us some return" if RWE was to spend more than €30 billion in power plants, mines and electricity grids.
That prompted a sharp response from Gabriel, according to his spokesman, Michael Schroeren.
Gabriel said the EU system needed urgent changes because RWE and other coal-burning utilities were making large windfall profits by passing through the cost of the permits they had received for free.
"RWE said of course it had made investments with that money," Schroeren said, referring to the windfall. "But the minister then told Mr. Lambertz, 'You got this money without doing anything with it."'
In a letter sent Wednesday to the International Herald Tribune, Jürgen Grossmann, the chief executive of RWE, wrote that "windfall profits were not pocketed, but rather translated in their entirety into investments in the order of €19 billion between 2005 and 2007."
Grossman wrote in response to an article published Tuesday in the International Herald Tribune about the size of windfall profits earned by utilities in Europe, and RWE in particular.
Bank analysts and environmental advocates estimate RWE has received a windfall of roughly €5 billion in the first three years of the system, concluding in 2007 - more than any other company in Europe.
Felix Matthes at the Institute for Applied Ecology, a German environmental research group, has estimated that RWE could benefit from a further €9.4 billion in windfall profits before 2013, when the system is supposed to be changed.
But Grant, the analyst, believes that other short-term factors have poisoned relations between Berlin and its partners including politics among coalition colleagues and rivals preparing for elections next year. Another issue, he says, is "the rudeness and arrogance of some German officials and political leaders when they deal with colleagues." One European diplomat this week described with distaste the blunt, uncompromising, manner in which the German finance minister Peer Steinbrück, contradicted the French economy minister, Christine Lagarde, at a recent meeting of finance ministers. The diplomat, who attended the session, spoke on condition of anonymity because of the sensitivity of the issue.
Though Merkel is famed for her polite, if steely, manner, her relations with the French president, Nicolas Sarkozy, are far from warm.
A scientist by training, with a mastery of detail, Merkel is instinctively at odds with her energetic and mercurial French counterpart. "The Germans," said another diplomat, also speaking on condition of anonymity due to the sensitivity of the subject, "hate the feeling that they wake up in the morning and have no idea what Sarkozy will do that day. They really hate it."
Klau put much of Germany's new-found obstinance down to the tensions within the ruling coalition.
"Germany has not become euroskeptic," Klau added, "but there is a growing and misplaced confidence in its ability to have a successful non-European foreign policy if the European policy available is one that Germany finds less palatable."
A German official, requesting anonymity to comply with government rules, argued that Berlin has put in place the biggest economic recovery package in Europe, worth €32 billion. But Germany makes few apologies for seeking to maintain fiscal discipline.
"Now we have already whisked our stimulus package through Parliament," the official said, "it is difficult to envisage Germany going on a spending spree beyond what we have already decided upon just in order to do 'something."'