FAST-FORWARD SEVEN years to 2020, the 30th anniversary of German unification (and, counting from the first Greek rescue package, the tenth anniversary of the start of the euro crisis). Leaders from across the European Union are arriving in Berlin for Germany’s birthday celebrations. What sort of Germany will they be dealing with, and what sort of Europe will they be living in?

First, let your optimism run wild. Imagine that the euro area is growing at a healthy pace, well into a recovery kick-started by the comprehensive clean-up and restructuring of European banks after the creation of the European banking union in 2014. Southern Europe’s economies have had a complete makeover, with far freer labour markets, smaller, more efficient government and a number of bold privatisations. Unemployment is falling steadily. Much of the credit for that goes to domestic reforms, prodded by the euro zone’s new German-inspired competitiveness rules, but outside financial help also played a role. Austerity was eased and rescue funds provided by other euro members were converted into low-rate loans extended over several decades. The European Transformation Fund, a German-inspired EU initiative, encouraged foreign investment in public-private partnerships.

In this rosy future vision of Europe the division between a strong north and a weak south is less stark. A booming export-oriented industrial belt stretching from northern Italy to the Netherlands, with Germany at the centre, attracts a steady stream of workers from all over Europe. So, too, does Germany’s “Agenda 2020”, a package of reforms introduced after the 2013 election to boost public and private domestic investment in projects ranging from education to energy conservation in order to rebalance the economy. All those new jobs have prompted a German construction boom as property prices have risen. But the movement of people has not been all one way. Thanks to the shake-up in the EU’s health-insurance rules, for instance, Spain now has a flourishing business looking after elderly Germans.

Through a glass, darkly

Yet looking around the euro zone today, darker outcomes seem much more plausible. It is all too easy to imagine the Europe of 2020 having suffered a lost decade, with no growth, an ever bigger debt burden and chronically high unemployment. In much of the continent deflation and a mentality resigned to decline will have set in, as they did earlier in Japan. Southern Europe will still be down in the dumps, and even France’s economy will remain moribund. These countries’ capacity to grow will have been permanently damaged as a generation of young people have grown up without any experience of work.

In this pessimistic scenario, the odds of political backlash are high. Several southern European economies have left the single currency after Eurosceptic parties took power. The euro, now confined to a group of northern European economies, has soared, hitting the German export machine hard. German firms and banks are battling with defaulting debtors. Capital controls are ubiquitous. With fragmentation as the dominant economic theme, Europe’s post-war integration project is in tatters. And in the minds of many foreign guests at Germany’s birthday party, their hosts will bear most of the responsibility for the mess. A few may even mutter, unkindly, that Germany, for the third time in just over a century, has wrecked the continent.

How can Europe avoid this grim outcome and improve the chances of a better future? What needs to be done will be difficult but not impossible. The euro zone does not need a superstate or full political union to recover its momentum. A banking union and a proper euro-wide bank restructuring will draw a line under the financial bust, cleaning up balance-sheets, recapitalising viable banks and allocating losses. The common rules to boost competitiveness on which Germany is so keen can be introduced without a wholesale revision of Europe’s treaties. Sensible schemes to encourage investment in southern Europe do not require the creation of a permanent transfer union.

The question is not whether Germany can lead Europe to a better future, but whether it is willing to do so

This special report has argued that disproportionate responsibility lies with Germany not only to lead Europe’s reform agenda but also to change at home—and the reforms needed to secure Europe’s future will do a lot of good at home too. More domestic demand will help ease the adjustment in Europe’s southern economies, but it will also bring real gains to Germans who have been forgoing higher living standards for a savings surplus that has been poorly invested abroad. An overhaul of the Energiewende aiming at a more sensible pricing system, more investment in energy conservation and the rapid completion of a new smart power grid will boost German growth and form the core of a coherent European energy policy. Reforms that encourage immigration and the investment in child care and schools that will allow women to do more paid work will benefit both Germany and Europe.

The question is not whether Germany can lead Europe to a better future, but whether it is willing to do so. More than anything else, that demands a change of mindset. This special report has argued that Germans have a skewed view of the euro crisis (“It’s due to failures in the periphery economies”); an incomplete interpretation of their own economic success (“It’s because we tightened our belts”) and limited awareness of the links between their own economy and others (“Germany must be protected from the mess elsewhere”).

Look outwards

As a result, too many German politicians believe that a large external surplus is a sign of strength to which other countries, too, should aspire, and define Europe’s action plan almost wholly in terms of what others must do. They regard their domestic decisions, whether eschewing nuclear power or bringing forward their budget consolidation, as intellectually and practically distinct from the future of Europe. The narrowness of Germany’s approach is reinforced by its emphasis on legalism rather than economics. At a time of record low interest rates, for instance, it makes economic sense for Germany to borrow more to invest in schools or in the new power grid. But the new constitutional debt brake, strictly interpreted, makes it impossible to do that without imposing spending cuts elsewhere.

Can this attitude change, and change in time? The shift required is huge. Germany’s politicians must switch from a small-country mentality to one in which their country thinks more broadly about the interests of Europe as a whole. They must do so in a way that maintains support from voters who fear that financial stability and European integration are at odds. And they must lead in a manner that other Europeans can accept.

Perhaps Germany can draw inspiration from the experience of another hegemon, America. Having shunned global leadership in the 1930s, America took responsibility for the international system after the second world war. Germany’s circumstances today are different in crucial ways: there is no military dimension, and the economic gap between itself and the rest of Europe is far smaller than the historic one between America and a Europe devastated by war. But the need for a shift from a small-country mentality to responsible leadership is similar. Even for America it was hard to make: Congress rejected key elements of the proposed international economic machinery, such as the International Trade Organisation. But, overall, it looked beyond narrow national interest to create the IMF, the World Bank, the fixed-exchange-rate system and other pillars of the post-war economic order.

Germany does not need to create a new institutional architecture, as America did. The EU has plenty of that. But it needs to think boldly about how the European system, and the euro zone’s economies, fit together. That means complementing Mrs Merkel’s competitiveness agenda with a financial framework for Europe’s peripheral economies, a strategy for pulling along a weakened France and a vision for rebalancing the German economy.

For the moment, there is not much sign in Berlin of any bold thinking along these lines. The government has floated a few modest bilateral proposals in recent weeks, such as using Germany’s development bank to help finance southern European firms and to encourage investment in venture-capital funds. But so far these ideas seem to be more about softening Germany’s image than changing its strategy. There will be no big initiatives until after the election, and whatever its outcome, Germany’s attitude to leadership and policy towards Europe is unlikely to change suddenly or radically. German politicians have not even begun to acknowledge the inconsistency and short-sightedness of their current approach, let alone offer a bolder and better one. In the short term, therefore, it is hard to see Germany doing what it needs to do if the euro is to survive and the EU to prosper. But further ahead there is at least a chance that this might change, for two reasons.

First, if Mrs Merkel wins the election, she will be looking for her place in the history books. She will want to be the one who fixed Europe, not the one who allowed it to fail. And second, even if Germany’s politicians act less boldly than they should, the country is already programmed to change sharply over the next few years. The demographic arithmetic is virtually certain to boost domestic spending and make German society more international. By 2020 Germany will have many more skilled migrants and more women in the workplace. It will become more of a modern European melting pot. So the best reason to be hopeful is that, though the future of Europe will be made in Germany, the future of Germany will also be made in Europe.