They always loved huge halls, the Social Democrats. They still do. Vaulted spaces taller than cathedral naves and vaster than locomotive assembly halls, mammoth sheds big enough to hold a battle-cruiser on stocks. This time I was in Augsburg, at the last SPD congress before the German federal elections on 22 September, but it was all familiar as I plodded towards the loudspeakers. The scent of bratwurst and mustard and German coffee; the aisles of lobby stalls promoting car factories, renewable energy, private health insurance or Bavarian tourism; the crop-haired bouncer scowling as he checked the press passes; the delegates clutching the party programme as they waddled through antechamber after antechamber towards the sound of the big guns. And then at last the arena itself, the loyal thousands sitting in half-darkness and staring towards a horizon on which tiny pink figures wiggled in the lights. Giant voices spoke from somewhere.

Yes, it was the same party I had known. The Social Democrats, the heavy, rusty anchor of German democracy, are 150 years old this year. Still honest, still fearful of taking a risk, still prone to the ghastly blunders which used to make people cover their faces and say: ‘Scheisse! Trotzdem, SPD!’ – ‘Oh shit! But we’ll still have to vote for them.’ The great exhibition hall at Augsburg could have been the gigantic Westfalenhalle in Dortmund where Willy Brandt used to speak at the climax of his election tours. That harsh, hoarse, painful voice seemed to be powered by coal and iron from the Ruhr industries around him. And now, forty years on, the SPD still speaks with a steam-age accent. Peer Steinbrück, the chancellor-candidate, is a steady, potato-faced politician, not a living monument like Brandt. But his oratory has the same blast furnace glow: red-hot rather than white-hot, pouring predictably down the channels of expectation.

He is a good man, with quite a bold programme for ‘social justice’. Tax increases for the better-off, a proper minimum wage, dual citizenship for immigrants, less elbowing individualism and more solidarity in a society where das Wir entscheidet – ‘it’s the we that counts.’ The German public, surprisingly, mostly agree that increasing taxes is a sound idea. What they resent is that the idea comes from the SPD. In the same way, the Augsburg programme is widely thought to make sense, but the voters don’t fancy Peer Steinbrück. They are pissed off with Angela Merkel’s governing coalition, but reluctant to let go of Mutti’s hand. In short, the public are in one of those sullen, unreasonable moods which make politicians despair.

Steinbrück deserves some sympathy. He is an over-experienced politician, whose efforts to be one of the blokes in the bowling club are not convincing. The SPD caucuses who chose him can’t quite remember why they did so, and at Augsburg several delegates told me they would have preferred Sigmar Gabriel, the thickset, vivid party chairman who is now blamed for ‘inventing’ Steinbrück. Both men are accident-prone: Steinbrück was revealed to be charging huge fees for lecturing financiers, while Gabriel madly suggested a 75 mph speed limit on the autobahns – in car-loving Germany, equivalent to proposing compulsory foot-binding for baby girls. Scheisse! Trotzdem …

The SPD is lagging in the polls. But Steinbrück’s chances of becoming chancellor – or rather, Merkel’s chances of losing the job – are in fact quite high. All that is needed is a challenger to take conservative voters away from the Christian Democrat/Christian Social Union bloc, or a further fall in the vote of the Free Democrats, Merkel’s junior coalition partners, which drops them below 5 per cent and so out of the Bundestag. Then the way would open for another Red-Green coalition of Social Democrats and Greens. ‘In Britain,’ I was told, ‘you still don’t grasp how mainstream Green has become in Germany.’ It’s not just that the Greens command about 15 per cent of the vote, or that other parties – even the CDU/CSU – have accepted items of the Green agenda. It’s the thirty-year journey from the noble but chaotic anarchy of the movement’s beginnings to established security at the centre left of German politics.

It is still hard to believe that Baden-Württemberg, the core of Germany’s modern industry and export strength, has elected a Green as minister-president. But Winfried Kretschmann, a middle-aged teacher, already looks the part of a grizzled, trustworthy Landesvater. He won his job and ended generations of Christian Democrat rule by appealing to younger middle-class voters – and their employers – who regard it as obvious that economic growth and carbon thrift go together. It wasn’t so obvious to the SPD boilermakers in Augsburg, with their eyes on traditional support in the old mining and steelmaking regions of the Ruhr. Neither Steinbrück nor Gabriel mentioned the environment in their long congress speeches, and when I left the hall, I found a gang of Green protesters building a Berlin wall of brown-coal briquettes across the car park.

In Stuttgart, Kretschmann agreed that there was a problem. ‘The old SPD left in north Germany think about coal and their links with the trade unions. They are very, very conservative. But we are more modern – we are concerned with society as well. The reason the first Green minister-president was elected here in Baden-Württemberg and not in a more traditional place like Sachsen-Anhalt is that we are already into the opportunities of Green technology.’ This link with industry puts Kretschmann in conflict with more radical Greens. The days when the German Greens split into Realos and Fundis over whether to enter the parliamentary game are long past, but there are still tensions. When the Green programme-drafters in Berlin proposed a temporary capital levy on everyone worth more than €1 million, Kretschmann objected that it would discourage investment in small and medium-sized family enterprises and found himself in a head-on confrontation with the party leadership. What’s nice about the Greens is that, in contrast to the postwar German mania for unity and agreement (volle Übereinstimmung), they thrive on dissension. The SPD draft programme at Augsburg drew 160 amendments from party members, but the Green programme, debated in Berlin in late April, faced 2600. After talking to me, Kretschmann went off to face a hysterical meeting in the Black Forest at which protesters against his plan for a national park stormed the platform and screamed ‘Judas! Dictator!’ in his face. Other German politicians would have panicked. For Kretschmann, it was creative disorder. He just smiled and kept on answering questions above the din.

Europe and the euro crisis scarcely figure in this election campaign. Listening to the speeches or reading the manifestos, you would never guess that boys and girls in other countries are charging water cannon and raving about German neo-imperialism, or burning pictures of Merkel as the destroyer of Europe. There is some heavy cliché about wanting ‘a European Germany, not a German Europe’. But where are the positive ideas about how German economic strength might relieve nations swamped by debt? The turmoil seems a long way off. Those who are aware of how hated Germany has become in parts of Southern Europe feel merely pained, misunderstood. The self-image of Germany as a bewildered, kindly nation, helpless to defend itself against greedy neighbours, dies hard. It was lent credibility a few weeks ago by an eccentric European Central Bank report which asserted that – in terms of ‘per household property’ – the Germans were among the poorest in the Eurozone, with an average wealth of €51,000 – less than the Slovaks and far less than a Greek or Cypriot household. This morally comforting estimate was soon rubbished; it ignored family income, which puts the Germans near the top of the league, and crudely set bank wealth against population (billions in septic bank holdings divided by the total number of Cypriot households equals €267,000, equals meaningless).

And yet, beyond the nonsense, the report implied some interesting things about German political psychology. People still prefer to rent rather than to own their homes, a contrast to post-Communist nations in the Eurozone where public housing was sold off to its tenants. The Germans tend to put their money into local savings banks (Sparkassen) at low but secure interest, rather than buy real estate or invest in the stock market. German unification after 1990 added a worthless economy and mass poverty to the balance. And the Second World War, followed by inflation and currency change, severed the artery of wealth transmission by legacy. In property terms as in everything else, Germany in 1945 started from zero. Thrift and caution are still hard-wired into society. The opposition jeers at Merkel’s stolid lack of ideas. But nobody dares seriously to challenge her proposition that Germany can’t go on financing reckless foreign governments until they are strapped into a European pact which guarantees responsible financial management. Equally, nobody likes to repeat an obvious truth: that the crisis which keeps the euro cheap is also keeping Germany’s export industries lusty and competitive.

Hard-wired, too, is something which has no exact English equivalent. Heimat-centredness is too clumsy; provincialism too dismissive. Leaning out of the window of my hotel room in Berlin, I heard nothing but birdsong and thought: this city will never be a real capital again. Once, after the Wall fell, I was among those who thought Berlin would become the roaring hub of Europe. Instead, broke and underpopulated, it has become one of the most liveable, user-friendly towns in the world. When people talk about ‘Berlin’, they usually don’t mean the government of the most powerful nation in Europe. They mean Klaus Wowereit, the gay mayor, or the film festival, or a new café on the Oranienburgerstrasse, or the botched plan for yet another unnecessary airport. There is no centre. Even Bonn, in the years when the federal government was there, seemed more in command than Berlin is now. The Länder of the federation go more confidently about their business and so do the self-governing rural districts and small towns at the next level down. ‘Europe is about subsidiarity,’ Kretschmann said in Stuttgart. ‘It has nothing to do with nationalism – there’s too much talk about national sovereignty in the European Union today. That’s atavistic!’

To see contented localism, I went to the ancient town of Schwäbisch Hall. An old friend, the veteran SPD politician Erhard Eppler, showed me round the place which has been his home for almost all his life. Here was the window he jumped out of as a schoolboy to escape the SS recruiters; the school his wife had gone to; the magnificent market square into which the citizens had crowded to cheer the young British queen on her visit to Germany fifty years ago. Every uniform and crown had camped in that square or waved from its balconies. Swedes and Imperialists in the Thirty Years’ War; the soldiers of the king of Württemberg who overthrew the town’s old independence; the Prussians in glittering helmets; the Nazis with swastika banners; finally the GIs wandering across the cobbles chewing gum as the town hall burned behind them. Each time, Hall survived and gave as little of itself as possible to the new rulers. And yet there was a price to pay for that. It’s all very well to say – in a German Lutheran way – that the best resistance to evil is to lock the door and live a clean, truthful family life at home. But in the street somebody is screaming. Erhard Eppler went out into the big, dangerous world and – as a cabinet minister – fought for universal values. Others in his country still feel that public life outside the family and beyond the town limit of the Heimat is a moral minefield.

This localism, which is so healthy and yet is also a protective screen blurring the problems of others, has contributed to the German myopia about Europe: ‘We are all right, so why can’t they be?’ Eppler, though, offers a more imaginative explanation. Merkel, he thinks, lacks sensitivity to the outside world because she comes from the old East Germany. ‘No awareness of recent German history influences her behaviour.’ Education in the German Democratic Republic taught the young that the crimes of the past happened in a different country, the fascist-imperialist Germany which had no connection to the ‘first socialist state on German soil’. Although she has nothing but contempt for GDR ideology, an Ossi like Merkel must see the complexes of Wessis, conditioned to flinch at any reminder of the Nazi past, as increasingly irrelevant.

East Germany lasted forty years. What remains is not so much the physical relics of the place, or the memories; its very existence is half-forgotten now. But the consequences of its passing, and the deep, ill-understood changes which unification brought to Germany – these do survive. When I lived there, it was the exceptions that fascinated me. It was exploring the no man’s land of certain ruins – the Potsdam Station, the jungly Lenné Triangle – which lay on East Berlin territory but outside the Wall. It was spotting the little gate in the wire frontier barriers near Lübeck, where a trickle of men and women, carefully ignored by West German media, made their way from West to East (along an overgrown path to ring the bell on the gate, until an armed guard came down from his watchtower with the key).

But it was not until years later, and after visiting the ‘reunified’ East, that I began to realise that more than a ruthless severing by the Great Powers had held the two Germanies apart. In historical hindsight, the partition can be understood as a cold civil war. The two societies had slowly diverged, becoming other and alien to each other in ways which were not all propaganda. And when the West Germans won that war and annexed East Germany (the best word for it), the aftermath was uncannily like Reconstruction after the American Civil War. Here was repeated the economic collapse, the inrush of greedy carpetbaggers from the victorious West, the purging of an entire elite from management, teaching and social leadership, the abolition of institutions and, of course, the liberation of the slaves – this time, into mass unemployment. It was a long time ago now. The tall young women cycling to university lectures in Leipzig or Rostock were born after the Wall came down. But, to go by the history of the American South, the cultural bitterness, economic lag and political distinctness will last for some generations. And, if Eppler is right about Ossi immunity to self-questioning about the German past, eastern Germany will continue to be the main source of racial violence and neo-Nazi conspiracy. In the National Socialist Underground trial currently going on in Munich, three of the men and women accused of murdering Turks and other foreigners came from Jena in the old GDR.

West Germany absorbed East Germany in 1990: no new state arose from the fusion, and the 1949 Bonn constitution was simply extended up to the Polish frontier. And yet today’s republic is not West Germany writ large. Some of the generous, optimistic elements of the Bonn republic have gone, broken as Germany staggered under the unexpected weight of integrating the East. One of these elements was the postwar acceptance that the fortunate must share with the unfortunate: that the federal government could use property taxes to transfer wealth from richer Länder to poorer, so that they could compensate those in need – the bombed-out, and the millions of expellees from the East. Reunification effectively killed that off; nobody could ask the new but penniless Länder to contribute. But when that wealth-sharing principle – Lastenausgleich – was transformed into the enormous and much resented burden of paying for the East’s ‘transition to capitalism’, the old instinct of solidarity faded. The constitution still says that ‘property entails obligations.’ But what would the public say now, if Merkel decreed a capital levy to balance the federal government’s contribution to Greek, Cypriot or Slovenian bailouts? Better not to imagine. More serious, and more obvious, was the damage done by unification to the ‘social market economy’. This was the ark of the West German covenant: the principle that a market economy could be combined with genuine social partnership between capital and labour and a generous welfare state. But the gigantic, unforeseen costs of unification brought Germany to a halt in the 1990s.

What followed changed the country and put down a marker for the rest of Europe. It was a Social Democrat, Gerhard Schröder, who as chancellor forced through a battery of brutally deregulating reforms which downsized welfare payments and, above all, ‘liberalised the labour market’ – curtailing unemployment benefit, abolishing protection for the low-paid and encouraging employers to offer short-term jobs. Unemployment at first soared, then began to fall steadily. Export industry recovered. Growth accelerated again. The rich grew richer, while the lower working class – women especially – began to encounter a degree of poverty and job insecurity they had never known. The ‘partnership’ consensus which had marked the West German social model before 1989 had been violated, perhaps beyond repair.

Schröder drove through that so-called Agenda 2010 programme in 2003, but lost the next election in the backlash two years later. He quit politics in disgust. A hard, handsome man with a taste for money and powerful friends, he now watches bitterly as his successor, Merkel, takes the credit for the economic revival that followed. ‘I don’t think it would be unfair to her to say that she has added nothing,’ he said a few weeks ago. But both would agree that Agenda 2010 – the radical remodelling of postwar welfare states on neoliberal lines – should be copied all over Europe. Ronald Reagan did it, Thatcher and Tony Blair did it, Germany did it – so why can’t François Hollande do it? The fact that the global bank disaster scarcely touched Germany, with its strictly controlled banking system, means that its politicians, from Merkel to Steinbrück, don’t empathise with foreign doubts about the infallible free market.

As for Merkel, sometimes she looks placid, sometimes she looks cross and disappointed, sometimes she smiles politely at foreigners over coffee and cakes. So she reminds people of Mum, and those who want to keep holding her hand think they know what she wants. Others, in despair, confess they have no idea what she wants. These days, she seems to have no policy of her own. Instead, after a suitable delay, she takes on opposition policies in a diluted form. Intellectual critics complain that she has no ‘idea’, no ‘concept’. And to describe what she does, or rather doesn’t, they have coined a frightful new German word: Entinhaltlichung. ‘It means what it says,’ a Berlin friend tells me: ‘Decontentification.’

Erhard Eppler says: ‘This is the worst government Germany has had since 1945.’ Left to itself, the coalition would pretty certainly, and deservedly, lose the September election. But Merkel remains popular, while Steinbrück is not impressive. The Augsburg SPD conference, more of a one-day rally than a serious congress, cheered up faithful party members but failed to lift the soggy SPD poll figures more than a couple of points. The smaller parties will decide the outcome. Alternative for Germany, founded in February, is a right-wing faction whose single policy is to leave the euro and restore the Deutschmark. But after a flare of interest, it became clear that most Germans put realism ahead of nostalgia; a return to that famous old currency would price their exports right out of world markets. The serious danger to Merkel is the Greens.

This election could be their triumph. Their ability to govern has been proven since 1998, when they entered the first of two coalitions with the SPD. Now, though, they are beginning to invade the centre ground. Kretschmann in Stuttgart is admired as the friend of small and medium industry. Elsewhere, the Green of 2013 is perceived as clean, civilised and nicely dressed. There’s evidence that older Christian Democrat voters – for whom the Social Democrats will always be ‘unpatriotic louts’ – are thinking of switching allegiance Greenwards. Roofs in the new suburbs of towns and villages glitter with solar panels, made in Germany. ‘Politics needs ideals, principles, values and a sense of achievable direction. And that’s exactly what we and many others find lacking in this government.’ So runs the Green election programme. Nobody can accuse the Greens, at least, of Decontentification. They alone seem to know what they want, and they may be well rewarded for that in September.