After VW, Germany needs EU friends to join its party

By Alastair Macdonald, Barbara Lewis and Tom Körkemeier
BRUSSELS (Reuters) - Nazi swastikas billowing under the triumphal arch that overlooks Brussels' European Union district drew the odd gasp from guests of Berlin's EU mission at an evening to celebrate 25 years since German reunification.
The image was fleeting, a prologue to a sound-and-light show that was a German 'thank you' for peace and unity with fellow Europeans since the Berlin Wall fell. But as it fetes the merger of East and West on Oct. 3, 1990, that made Germany the Union's dominant power, the flashback was a reminder of its struggles to reassure neighbors who again wonder if Berlin can be trusted.
Today's rows, over refugees, austerity or Volkswagen (XETRA:VOWG) cars, are a world away from Europe's bloody 20th century. But recent events have raised new questions about German fair play and credibility, putting pressure on Chancellor Angela Merkel to win back EU allies as a series of crises saps her support at home.
Merkel and French President Francois Hollande will attend the European Parliament together on Wednesday, symbolically reprising a visit by their predecessors Helmut Kohl and Francois Mitterrand to the Strasbourg assembly after the Wall came down in 1989 and Europe began to fret about a reunited Germany.
"Germany was always the linchpin in compromises," Fabian Zuleeg, who runs the European Policy Centre think-tank, said of the EU's early decades. "Now Germany will closely consider what is our national interest and then act accordingly. It's changing the whole dynamics of decision-making at a European level.
"What we are seeing is Germany behaving much more like other countries. But because it's Germany, it has a different impact."
A reunited population gave Germany clout in Brussels greater than former peers France, Britain and Italy. Economic power in the euro, once seen in Paris as a tool to rein in Berlin, and a new self-confidence have seen Germany eclipse struggling EU co-founder France in a bloc whose center of gravity has shifted firmly eastward with the accession of new ex-communist members.
No one suggests Berlin's EU leverage -- via voting weights, cash and Germans in key posts -- has been put at risk by its handling of crises on Greek debt and migrants or by misdeeds at its flagship Volkswagen car manufacturer that have highlighted single-minded German stonewalling of EU anti-pollution measures.
Yet each of these three dramas over the past few months has been a reminder of the limitations even Merkel faces unless she can build substantial consensus across the 28-nation Union.
CRISES, THEN SCANDAL
In the crisis over Greece's debt, it was Athens which ended up isolated. But Germany's handling of the negotiations, whether in its hard line on austerity measures or even in its occasional hints at compromise, drew plenty of grumbling around the bloc.
Migration has proven even more divisive. Merkel's unilateral suspension of EU rules to offer a welcome to Syrian refugees angered neighbors who accused her of encouraging the migrants' treks across Europe.
A poisonous row in which national quotas for taking refugees -- a key German demand -- were imposed by majority vote has also raised questions about Berlin's will to build EU consensus.
But for some in Brussels the Volkswagen scandal, while its full extent remains unclear, could have most impact by stiffening resistance to Berlin's efforts to shield its key industries from more rapid environmental protection legislation and, more broadly, by calling into question the credibility of German leadership.
The admission last month by Volkswagen, Europe's largest carmaker, that it cheated diesel emissions tests has rocked the global auto industry and the German establishment.
"You can't get more German than Volkswagen," one senior EU diplomat said. "Berlin has thrown its weight about in Brussels to protect these manufacturers and now this. It's very bad. People are angry. They can't get things all their way again."
Privately, diplomats from other states and some EU officials have said the scandal could strengthen their hand against Berlin, though there is also concern that it weakens the EU's collective claim to global leadership on environmental policy.
Philippe Lamberts, a Belgian former IBM (NYSE:IBM) executive who is a leading Greens member of the European Parliament, said cheating by a company so close to the German state showed a degree of hypocrisy and could strengthen resistance to Berlin's interests.
"Germany had a renewed assertiveness that it did not have before reunification. The weight of World War Two was now gone and rightly so," Lamberts said. But he added: "Germany was a hegemon because other member states allowed it to be. Germany was lecturing Greece ... Germany has to stop lecturing."
Pierre Moscovici, a former French finance minister and now economics commissioner on the EU executive, publicly dismissed suggestions the Volkswagen case weakened Germany in the bloc.
"It does damage to the image of the company itself. It raises questions about broader issues," he said in Berlin. "But it will not limit German influence at all in Brussels."
FRIENDS IN NEED
David Marsh of the OMFIF think-tank said a loss of trust in Germany in some areas could dent its authority elsewhere.
"Trust is a valuable commodity," he wrote. "If the Germans disregard their own rules in environmental technology, other people are not likely to heed Germanic strictures in economics.
"In forthcoming discussions about austerity throughout Europe, heads of government and finance ministers will find themselves talking, however improbably, about diesel emissions."
German officials are at pains to stress their reluctance to strong-arm EU partners.
"Germany is in the driver's seat because we're the biggest country, the richest country," Merkel's European affairs minister Michael Roth said in Brussels.
"We have to take responsibility," he said with particular reference to the refugee crisis. But he added: "I don't want to blackmail our partners ... Germany should not be too tough."
Merkel herself will have an opportunity in Strasbourg to talk up that cooperative spirit and partnership with France. Officials say her joint address with Hollande was long planned -- though it was only squeezed into the assembly's public agenda just after the Volkswagen scandal broke two weeks ago.
"Germany is completely committed to defending European unity," the parliament's German speaker, Martin Schulz, assured the crowd at the Brussels reunification party. He singled out Hungary, Merkel's bete noire in the migration crisis, to thank for its role in prizing open the Iron Curtain in summer 1989.
And as Germans celebrate their unity this weekend, they can expect to hear more encouragement to remember their neighbors.
"Germany has to accept that ... it cannot get everything it wants," said the EPC's Zuleeg, warning that a resort to outvoting smaller countries on sensitive issues such as immigration was fuelling a "general breakdown of trust".
"While it may be possible to throw your weight around, in the long run that's not the best way of advancing German interests ... You need friends at the European level."