For a while in the 1980s, I used to spend my Sundays in the Old Cemetery in the town of Bonn in the Rhineland. Wandering amid the provincial tombs, I was forever coming across some stupendous intellectual celebrity. Here were Beethoven's mother and Schiller's wife; Clara and Robert Schumann; August Wilhelm Schlegel; Mathilde Wesendonck, for whom Wagner wrote his most beautiful music; FWA Argelander, who mapped three hundred thousand stars. These Sunday excursions were for me an exercise in mental recuperation. Bored by the Third Reich and its uptight little successor republics in West and East Germany, I sought an afternoon's peace in an older and, as I thought, more German Germany.

Peter Watson's colossal encyclopaedia, The German Genius, might have been written for me, but not only for me. A journalist of heroic industry, Watson is frustrated by the British ignorance of Germany, or rather by an expertise devoted exclusively to Adolf Hitler and the Holocaust. Watson wonders not just why the nation of thinkers and poets came to grief between 1933 and 1945 but also how it put itself together again and, in 1989, recreated most of the Wilhelmine state without plunging Europe into war or even breaking sweat.

Watson has not simply written a survey of the German intellect from Goethe to Botho Strauss – nothing so dilettantist. In the course of nearly 1,000 pages, he covers German idealism, porcelain, the symphony, Johann Joachim Winckelmann, telegraphy, homeopathy, strategy, Sanskrit, colour theory, the Nazarenes, universities, Hegel, jurisprudence, the conservation of energy, the Biedermeyer, entropy, fractals, dyestuffs, the PhD, heroin, automobiles, the unconscious, the cannon, the Altar of Pergamon, sociology, militarism, the waltz, anti-semitism, continental drift, quantum theory and serial music.

His approach is purely biographical, which may sacrifice depth but makes for clarity. Watson is better at the end than at the beginning, more at home with Georg Simmel than Immanuel Kant. He is never not good company, and two mannerisms irritate because there might have been none. The first is a phrase to describe the German Enlightenment or Aufklärung as coming "between doubt and Darwin", which doesn't mean enough for one use let alone 20. The other is the word "raft" as a noun of multitude (50 uses). Umlauts are sometimes accorded and sometimes withheld, without system, like honours in some petty German dukedom.

So, is there a German genius? Of course there is. Even Borges never suggested that Goethe's Die Leiden des jungen Werthers could have been written in Spanish, or Einstein's "Zur Elektrodynamik bewegter Körper" in English. Of all the answers assembled by Watson, the clearest comes from the American philosopher John Dewey in 1915, who summed up German civilisation as a "self-conscious idealism with unsurpassed technical efficiency and organisation". By idealism, he meant a belief that behind appearances or phenomena is some super-reality, sometimes called Geist, sometimes called Wille, sometimes even Musik. Whatever it is called, it speaks accurate German. The efficiency is for all to see. When I lived in West Germany, the Bundeswehr or federal army used to pretend to be a slovenly rabble, but nobody was taken in. When the Greens came into parliament in 1983, their wild costumes and warring ideologies could not disguise the most punctilious office habits. As for German self-consciousness, a British brigadier in Bielefeld once put it to me, in his staff-college drawl: "Vey do make wather a meal of being German, don't vey?"

Watson derives the German genius from deep springs. Germanness as a notion long predated an all-German state. German protestantism, high literacy, well organised universities and a Jewish citizenry devoted to German high culture all played their role. How all that ended in Hitler is one of the questions of historiography. Watson devotes many pages to German soul-searching over the Third Reich, and the "treason" of a cultured middle class in voting him in and turning against the Jews and the west. When the German state finally arrived in the late 19th century, it was late and military and profoundly demoralising to that class. For what it is worth, I never thought the Third Reich either inevitable or particularly surprising.

For Germany's postwar success, Watson rounds up the usual philosophical suspects, including the famous Unfähigkeit zu trauern, or "inability to mourn". He argues (rightly, I am sure) that in western Germany the student revolt of 1968 was a sort of re-Germanisation of the state created by the western allies and the beginning of a reckoning with Hitler and the Holocaust.

The long detour of the '68ers from street demonstration to terror or its fringes and finally, after 1983, constitutional government is given its due. Here the biographical treatment works well: the life of a man such as Joschka Fischer is exemplary. What Watson ignores is the unrelenting Soviet campaign to destablise West Germany and, in 1983, to provoke a civil war over American nuclear weapons in the country. To make up, there are admirable chapters on how German refugees from Hitler revolutionised intellectual life in the US and Britain.

For Watson, it appears that the "fourth generation" of postwar Germans is coming out from the shadow of the Third Reich. Though he does not say so, a haunted country grown prosperous from the export of precision machine tools may have a brighter future than Britain, for all its clear conscience and financial wizardry.

James Buchan's Gate of Air: A Ghost Story is published by Quercus.