RUTHFULLY YOURS

As German Chancellor Angela Merkel and French president Nicolas Sarkozy do their best to put on a public face of cooperation in resolving Europe’s escalating sovereign debt crisis, behind the scenes both leaders are seething.

They are angry with each other, angry with each other’s policy choices, angry with each other’s friends and allies.

It’s well-known that German taxpayers are fed up with footing the bill for Greeks who take longer vacations than they do and retire on full government pensions many years earlier than they can. Less known is that the German government is actively considering allowing Greece – and possibly Portugal and even Italy and Ireland – to drop out of the Euro-zone.

“If the Euro fails, it will be Merkel’s fault,” a senior advisor to French president Sarkozy told me recently. “Germany has been resisting efforts to prop up the Euro. If the Euro collapses, it will be as much Germany’s fault as it will be that of the over-indebted Euro-zone members.”

Europeans are used to duplicity. That’s why they weren’t surprised to hear President Obama sharing derogatory personal remarks about Israeli prime minister Benjamin Netanyahu to French president Sarkozy when both leaders apparently thought the microphones were off.

But the duplicity of German Chancellor Merkel – smiling at Sarkozy in public, while throwing daggers at him in private – takes the cake.

The European media often talks of the Paris-Berlin axis, a code phrase meant to signify a marriage of reason between Europe’s two biggest economies.

But the extent of the falling out between Merkel and Sarkozy goes way beyond a marital spat. It is verging on divorce.

As the French rely increasingly on Britain and the United States, Germany is leering to the east. “What we are seeing is the emergency of a new Berlin-Moscow-Tehran axis,” the Sarkozy advisor warned.

There are many signs of trouble just beneath the surface.

First, there is Germany’s ongoing trade with Iran. Despite strong European Union sanctions on Iran, top German firms continue to do a booming business with Tehran.

Even worse: German trade associations are actively promoting exports to Iran, even as the EU calls for halting trade entirely.  Here are a few of these trade promotion events from just the past two months:

–          On October 10, 2011, a delegation from southwest Iran visited Dresden seeking to expand Iran’s purchase of oil and gas field technology from German firms. (The organizers of this event have no sense of irony, as their website slogan shows: “European-Iranian ventures, Your Economic Success”)

–          On October 26, the German Foreign Policy Association hosted Iran’s Vice Minister of Economics and Finance, Dr. Mohammad Reza Farzin, to a public forum to promote cooperation with Iran and oppose sanctions.

–          On November 8, the German Business Association hosted a German-Iranian Business Congress in Berlin, spotlighting “Iranian Business Women Power.”

–          On November 22, the Bavarian Ministry for Economics held its annual Export Promotion Day, with a special emphasis on exploring “better market chances in Iran, possibilities to invest, finding business partners in Iran.”

(Hat tip to the enterprising group known as Stop the Bomb for keeping close tabs on German exports to Iran).

We’ve been through this song and dance before with Libya and Iraq in the 1980s, where the Germans were building poison gas factories and ballistic missile plants. It became known as trade über alles.

At the same time, Merkel’s government has been pressing hard behind the scenes to block EU sanctions against the Iranian Central Bank, an initiative being promoted by French president Sarkozy.

So what’s going on? At a closed door meeting among European intelligence czars recently, top officials at Germany’s BND (their equivalent of the CIA) shocked their counterparts with the virulence of their ant-American remarks.

There’s a 1930’s style resurgence of nationalism in Germany that has caught the attention of many Europeans, the top Sarkozy advisor told me. “It’s Germany first, and to hell with Europe,” he said.

At the same time Germany is eager to protect its business ties to Tehran, Chancellor Merkel has been forging a closer political and economic relationship with Russia.

Some observers see the covert hand of Russia’s SVR intelligence service in the recent anti-nuclear campaign that led to Merkel’s surprise announcement on May 30 that Germany will close all of its 17 nuclear power plants by 2022.

The French, of course, are particularly sensitive to such things since they rely on nuclear power to produce around 80% of their electricity and are the world’s foremost exporter of nuclear power technology.

But what really got the French buzzing was the announcement that Russia’s Gazprom is offering to set up a joint-venture to finance, build and operate gas-fired power plants in Germany to replace the nuclear plants Merkel now says she will close down.

Russia showed that it has not forgotten how to play Cold War power politics with energy supplies when it cut off Ukraine’s natural gas supplies in the dead of January 2009, ostensibly over a payment dispute. Of course, what the Russians were really about was putting pressure on Ukrainian president Viktor Yushchenko, an anti-Moscow reformer they had already tried to get rid of once by poisoning him.

The Russian overtures to finance new natural gas power plants in Germany are a disturbing throw-back to the Cold War era when the Soviet Union tried to hold Europe hostage to Soviet gas supplies through the trans-European gas pipeline (which the Reagan administration opposed).

Faced with these challenges from a wavering ally, the Obama administration has been laying the groundwork for a massive bailout of the Eurozone by the International Monetary Fund as a means of getting the Germans off the hook.

As political consultant Dick Morris pointed out on Tuesday, the United States contributes 17% to the IMF budget, so the $1.3 trillion IMF bailout is likely to include around $200 billion in U.S. taxpayer loan guarantees.

“Everybody knows Greece is going to default,” Morris said. “And when they default, that guarantee gets called and then we automatically give the IMF the money without Congress appropriating it. It will be like a massive TARP bailout but for Europe, instead of the United States – and doing something the Europeans are perfectly capable of doing for themselves but are politically unwilling to do.”

So what is Germany’s master plan?

Put simply, it’s this. Make money by selling everything to Tehran, buy gas from Moscow, and stick Washington with the bill, all the while expecting the United States to defend them should Iran launch missiles against Europe.

A new administration should carefully re-evaluate our alliances in Europe. My suggestion: more France, less Germany.

Stay tuned.

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