Mini Teaser: Germany is no longer Europe’s most troublesome player. It’s now an indispensable nation. The power of this transformation is personified by Chancellor Angela Merkel and her delicate political and diplomatic balancing act.

BACK IN November 2011, as Europe struggled with its ongoing financial crisis, Poland’s foreign minister, Radek Sikorski, gave a speech in Berlin that beckoned toward his country’s western neighbor and pleaded with it to save the euro. “You know full well that nobody else can do it,” said Sikorski. “I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity. You have become Europe’s indispensable nation.”

Indispensable? This was an extraordinary statement from a top official of a nation that was ravaged by Germany during World War II. And it reflects a profound shift taking place throughout Germany and Europe about Berlin’s position at the center of the Continent. The past view that what was good for Germany was bad for the European Union is being supplanted by a new attitude that what is good for Germany is even better for its neighbors.

And Germans, who since 1945 had accepted the subservient European role forced upon them by their victorious World War II adversaries, are now cinching up their collective lederhosen and adopting a more assertive posture. The country is shedding its status as junior partner to America and embarking upon its own path. All this is evident in five important ways:

• Germany is forging a new national identity that is less influenced by the Nazi past and that looks to the broader sweep of the country’s place in European history dating back to the eighteenth and nineteenth centuries. Germany is increasingly looking back at its Prussian ideals, which it sees as having been betrayed, not represented, by Nazism.

• The trend toward German independence began with the socialist chancellor Gerhard Schroeder, who denounced the George W. Bush administration for going to war in Iraq—a change from Germany’s Cold War role as submissive ally. Additionally, in 2003 Schroeder, in a Nixon-goes-to-China move, courageously backed “Agenda 2010”—a set of sweeping economic reforms and social-welfare cuts that slashed government spending.

• This surge of self-confidence is bolstered by Germany’s new status as Europe’s economic powerhouse. As Sikorski’s pleading suggests, only Germany possesses the economic muscle to push through and support a European recovery program, and this is a development that Germans, habituated to shunning the spotlight, are grudgingly beginning to accept.

• Germany increasingly is pursuing a self-confident foreign policy set apart from the wishes and demands of its erstwhile American patron. Following on its refusal to participate in the Iraq War, it shunned the West’s intervention in Libya and has pursued independent ties with Russia and China, raising eyebrows in Washington, DC.

• And yet this new German emergence is accompanied by intense birth pains. Powerful political issues and forces have been unleashed, both within Germany and throughout Europe, as Berlin takes the lead in guiding the EU through its economic crisis.

All of these developments and issues are personified by Germany’s controversial but politically adroit chancellor, Angela Merkel. No European leader is being attacked more virulently than Merkel as she seeks to lead the seventeen-nation currency zone through its sovereign-debt crisis. In demanding fiscal discipline from the southern European states, she has incurred the wrath of Greeks and Spaniards, who routinely depict her as a reincarnation of Otto von Bismarck and Adolf Hitler. And at home, German socialists and conservatives are apoplectic at what they see as either Merkel’s foot-dragging or her folly in acceding to any bailout measures which would transfer more German wealth to the country’s profligate southern neighbors.

As Germans tremble at the prospect of their retirement pensions and savings flowing to these spendthrift states, the recent decision of the German Federal Constitutional Court sanctioning Germany’s participation in the decision of the European Central Bank (ECB) to buy up bonds is being treated as tantamount to a sellout of German national interests. The idea is that Merkel is being squeezed by Europe in general and Italy in particular—by Prime Minister Mario Monti and a fortiori by ECB president Mario Draghi. These apprehensions recently were captured in a column by the prominent German commentator Josef Joffe in the September 4 Financial Times: “Instead of ‘Germanising’ Europe, the Germans are about to be ‘Europeanised,’ or even ‘Club Med-ified.’”

But are they? Are these fears justified? Is Merkel a bungler? Is Germany doomed to suffer a repetition of high inflation? Or are the naysayers transfixed by a bogeyman from the past that has little practical relevance for the present?

THE TRUTH is that, as Germany reclaims the economic dominance it enjoyed on the Continent during the late nineteenth century, Merkel is proving herself to be one of the most farsighted chancellors in German history. With a personal popularity rating near 70 percent, she is favored to win a new course as federal chancellor in 2013 against Social Democratic candidate Peer Steinbrück. Unlike President Obama—who is regarded in mainstream German economic and policy circles as anathema for his insistence on fiscally loose Keynesian measures—Merkel has not simply opened the economic spigot. The average German voter fears that if a Social Democratic-Green coalition were currently in power, the keys to their financial security would be blithely handed over to their European brethren.

So whatever they may think of her policies, Germans love Merkel’s lack of theatrics. She is her country’s Iron Lady, but she rules with a velvet touch. At a moment when polls show that a majority of German voters oppose bailouts, she has managed to pursue a sensible middle course, neither capitulating to the southern states nor embracing the equally unpopular idea of abandoning the euro. In essence, the Germans would like to have it both ways, and Merkel is ensuring that they will—up to a point.

Enter her finance minister. Wolfgang Schäuble, a protégé of former chancellor Helmut Kohl, is a tough old bird. No one has done more to maintain Germany’s commitment to Europe than Schäuble, who has served in parliament for forty years and was present at the signing of the Maastricht Treaty establishing the euro in 1992. In receiving the Charlemagne Prize this past May, Schäuble said, “Pragmatism and flexibility are usually better than sticking to principles which only produce stalemate.” He joins Merkel in pressing for a resolution to the European sovereign-debt crisis that takes into account domestic political reservations about tying German economic fortunes to the rest of Europe. But there can be no doubting that he and Merkel are following a winding fiscal road and have yet to reach their final destination. Before the June EU summit in Brussels, Merkel declared that “there will be no collectivization of debt in the European Union for as long as I live”—music to the ears of the Free Democratic Party, Merkel’s junior coalition partner, which espouses classical liberal economics and vehemently opposes transfer payments. The Free Democrats have partly managed to recoup their electoral fortunes by adopting populist stands on the euro. But the party has had to watch submissively as Merkel concedes some ground to the rest of Europe while also insisting on tougher controls over the disbursement of funds and internal austerity measures.

And so at the June summit she yielded to the inevitable, assenting to the emergence of what amounted to a banking union. Schäuble has been her point man, reprimanding the head of the German Bundesbank, Jens Weidmann, for questioning Merkel’s decision to push forward with contributing 190 billion euros to the European Stability Mechanism. Schäuble made it clear that Germany will push ahead with further such measures and a tighter European union but only if clear conditions are met, including the creation of a European banking supervisor housed at the ECB. Writing in the August 30 Financial Times, he stated, “It is crucial that the new system be truly effective, not just a façade. We must eschew yesterday’s light-touch approach for good and endow this supervisor with real and clearly defined responsibilities, coercive powers and adequate resources.”

The message seems clear: verify before trusting. With adequate safeguards in place, Germany will not waver in its commitment to both the euro and European integration. To follow the course propounded by Weidmann and others, by contrast, would be to risk a European depression. They are offering moral strictures rather than a plan for European recovery. And they would have Germany shun a role that only it can play in Europe’s ongoing fiscal drama.

The most drastic step Berlin could take would be to increase domestic consumption. Like China, it has been relying on exports. While its trade with European countries has been declining—a sign that, to some extent, Germany has emancipated itself from the vicissitudes of the other lagging European economies—it has dramatically increased its trade with countries outside the euro zone. Its overall trade surplus exceeds 160 billion euros.

In Germany’s past since World War II, economic power has not translated into political power, and in fact the country shunned any serious leadership role. It accepted the euro largely so that it could bury itself in a wider European federation, and there’s no question that the notion of a dominant European role remains somewhat daunting. But in this time of troubles, Germany and its neighbors are beginning to reassess the country’s position at the center of Europe. Still, Merkel has taken great care to signal that Germany’s growing dominance does not mean that it can, or wants to, assume hegemony, which is very different from leadership. Instead, Merkel is reshaping Europe by attempting to export the German economic model, which shuns the Keynesianism of the Obama administration. Consider this index of German economic success: over the past decade, while personal wealth has shriveled in America, it has more than doubled in Germany, from a total of 4.6 billion euros to more than 10 billion. The German national budget is set to be balanced by 2015, and the federal states will be legally obligated to run balanced budgets.

Image:Pullquote: As Germany reclaims the economic dominance it enjoyed on the Continent during the late nineteenth century, Merkel is proving herself to be one of the most farsighted chancellors in German history.Essay Types: Essay