Under Chancellor Angela Merkel, Germany continues to demonstrate an irrational fear of inflation and an unwillingness to disrupt its commercial ties with Russia. Photographer: Chris Jackson/Getty Images
Under Chancellor Angela Merkel, Germany continues to demonstrate an irrational fear of inflation and an unwillingness to disrupt its commercial ties with Russia. Photographer: Chris Jackson/Getty Images

The gap between the European Union's pretensions and capacities has never looked so wide. Its stagnant economy and the crisis in Ukraine point to gross failures of leadership. In both cases, Europe's de facto leader -- Germany -- is especially to blame.

Is that unfair? You could argue that these blows to Europe's prosperity and security have come from outside -- that the global recession started in the U.S. and the conflict in Ukraine is all Vladimir Putin's fault. You'd be letting Europe's leaders off too lightly.

The EU's current economic policy is indefensible: The EU has chosen to extend the recession by rejecting available remedies. As far as its foreign and security policy goes, this can barely be said to exist. Europe didn't make Putin the ruthless outlaw he is, but it provoked him while knowing it was unwilling or unable to deal with the consequences.

Germany's input to these mistakes has been disproportionate. It isn't just that the size and strength of Germany's economy have made Berlin the de facto capital of Europe. It's also that the errors are characteristically German -- postwar German, that is. Germany's morbid dread of inflation and what can follow has paralyzed Europe's economic policy; and its overweening desire for commerce with Russia and reluctance to confront threats with force has defanged the EU's security policy.

Don't misunderstand me. Germany's desire to heed the lessons of its modern history is noble. Better this, no doubt, than financial recklessness combined with resurgent militarism. But 70 years after the war it's ashamed of, Germany is still -- how to put this? -- overcompensating.

Fiscal austerity and monetary stringency are imposing huge economic costs and threatening Europe with outright deflation. Germany's pathologically orthodox policymakers have set their faces against fiscal relaxation and resisted the European Central Bank's timid moves to loosen monetary conditions. Quantitative easing of the sort used by the U.S. Federal Reserve is needed to support demand. Europe's suffocating fiscal rules, set down in the Stability and Growth Pact, could be adjusted too, given the will. These initiatives wouldn't be entirely without risk, but fears of a 1920s-style hyperinflation are absurd in current circumstances. They need to be expunged from the discussion.

The desire for peace and commerce isn't absurd and doesn't need expunging -- but Europe must be capable of showing Russia sufficient resolve to make Putin think twice. Led by Germany, the EU has dragged its feet over sanctions against Russia since the crisis in Ukraine began. Aside from reducing the immediate costs to Russia of its actions in Ukraine, this timidity calls into question Europe's willingness to defend itself and its NATO partners. Russia is seizing foreign territory by force -- and Europe flinches at the idea of tough economic sanctions. What does that say about the credibility of promises to fight for Poland and the Baltic states if the need arises?

Earlier I mentioned that Europe provoked Putin over Ukraine. How so? Under Germany's leadership, Europe has greatly enlarged its union to the east. It brought in Poland and the Baltic states at a time when Russia was cowed and preoccupied with its own internal problems. Binding those countries to the West was a bold move and, since the timing was right, also wise. But when the EU in effect asked Ukraine to choose between Europe and Russia -- as it did in 2011 -- it acted imprudently.

By this time Russia under Putin was looking to reassert its place in the world. A Ukraine with aspirations to join both the EU and NATO threatened to bring the Western military alliance to the Russian border and defeat Putin's ambition to rebuild Russia's sphere of influence. Moreover, Ukraine has a large Russian-speaking minority and a special historical significance to Russia. It's hard to say which would be more stupid -- to deliberately provoke Putin with a scheme to marry Ukraine to the West, or to offer the betrothal without planning for the possibility that Putin might object.

In any event, when he did object, what were Europe's options? Despite repeated warnings and pledges dating back to the building of the first pipeline in the 1980s, it has allowed itself to become dependent on Russian gas. It prizes the export opportunities of trade with Russia. And it has spent recent years diminishing its commitment to its own defense. Again, in all three respects, Germany has taken the lead. NATO members have informally promised to spend 2 percent of gross domestic product on defense. Last year, the U.S. spent more than twice that -- about the same share of GDP that Russia spends. Europe's NATO members spent, on average, 1.6 percent. Germany spent 1.3 percent.

Considering the 20th century alternative, it's good that a commerce-seeking, peace-loving Germany leads Europe. But the Age of Aquarius hasn't quite dawned. Apparently, there are some bad people out there and one or two countries still haven't adopted Germany's modern Weltanschauung. If Germany expects to lead, it had better understand this, and accept the obligations that go with the job.

To contact the author of this article: Clive Crook at ccrook5@bloomberg.net.

To contact the editor responsible for this article: James Gibney at jgibney5@bloomberg.net.