A few weeks ago, I questioned German wage restraint, pointing out that other Eurozone countries would prefer Germany to allow salaries to rise, thus stimulating domestic demand, and helping address Europe’s economic imbalances.

French finance minister, Christian Lagarde recently made the same point:

Clearly Germany has done an awfully good job in the last 10 years or so, improving competitiveness, putting very high pressure on its labour costs. When you look at unit labour costs to Germany, they have done a tremendous job in that respect.

[But] I’m not sure it is a sustainable model for the long term and for the whole of the group. Clearly we need better convergence.

In the FT, Otmar Issing – who did his best to ensure the European Central Bank was run on Bundesbank-approved lines – reacts to the suggestion with characteristic restraint and good humour:

This idea, presented as a panacea for Europe’s problems, is so economically erroneous and politically dangerous that it would hardly deserve being taken seriously – were it not for the risk that it might actually prevail…

At a time when the EU has launched a new initiative to make the continent’s economies more competitive, after the failure of the “Lisbon agenda”, an approach that deliberately tried to reduce the competitiveness of one of the most successful exporters in world markets would look like a bad joke.

I’ll take that as a ‘no’ then. Issing, who has been lobbying hard against a Greek bailout, reflects a worrying trend in German opinion. According to this line of thinking, other Eurozone countries should buckle down, cut wages and public spending, and do what their richer and more prudent masters in Berlin Brussels tell them to.

And if this medicine is too bitter, then they should bugger off, re-adopt the drachma, lire or peseta, and spend the next hundred years or so paying back the Euro-denominated debt they have incurred while in the single currency.

It’s a depressing vision. And, for Europe, it looks like it’s stagnation ahead.

- European Geostrategy suggests that EU security and defence policy is like a jazz band and explains why a White Paper providing a “grand strategy” is needed. EUobserver, meanwhile, has news on the emerging shape of the European diplomatic service – its structure and staffing – as member states gear up to secure the important EEAS secretary general post.

- Elsewhere, Constanze Stelzenmüller takes an in-depth look at the travails of German security policy, offering insights into how it might evolve. Highlighting the lack of strategy, she argues that “fundamental decisions regarding German security policy have been repeatedly forced into the Procrustean bed of moral necessity, domestic imperatives, or the demands of external alliances.”

- Finally, over at openDemocracy, Andy Yee explores the “hedgehog’s dilemma” between China and the West, highlighting a gradual acceptance of different core values. TIME magazine, meanwhile, assesses the slow progress toward democracy in Hong Kong and the possible wider implications from Beijing’s perspective.

Germany is planning to stop what it sees as a British campaign to dominate European foreign policy-making under Lady Catherine Ashton, the Guardian can disclose.

Amid growing criticism across the EU of the performance of Baroness Ashton of Upholland, the EU’s new high representative for foreign and security policy, Berlin and Paris are alarmed at the prominence of British officials in the new EU diplomatic service being formed under Ashton.

A confidential German foreign ministry document analysing the creation of the EU’s new diplomatic service, seen by the Guardian, has concluded that Britain has grabbed an “excessive” and “over-proportionate” role…

The French contend that the inexperienced Ashton is being schooled in policy-making by the Foreign Office. Diplomats and officials in Brussels also see Britain’s hand in one of Ashton’s first appointments, made last week. She named Vygaudas Ušackas, a former Lithuanian foreign minister and ambassador in London, as the EU’s special envoy to Afghanistan. He was widely seen as the UK’s favoured contender after Britain withdrew its own candidate because it secured the post of Nato envoy in Kabul.

The Germans are also increasingly unhappy at what they see as the erosion of their influence and being cut out of decision-taking.

But surely Greece, Italy, Spain and Ireland (and the UK as well) would prefer Germany to push wages up – putting more money in the pockets of German consumers and helping reduce Europe’s trade balances?

In recent years, Klaus has carved out quite a niche for himself, trolling other governments on climate change, European integration and a host of other issues. His latest trick is declare that Lisbon will leave the Czech republic open to legal claims from 3.5 million ethnic Germans expelled at the end of the second world war – a red line he somehow forgot to mention before now.

As he clearly hoped, other European governments have responded furiously. But the German reaction must be beyond his wildest dreams – an insane suggestion that he should be impeached on the grounds of, wait for it, high treason.

The Times has even managed to find a German diplomat dumb enough to give the following quote (whose idiocy is such that I wonder whether the paper simply made it up)::

If the president is obstructing the democratic process and opposing the decision of parliament as well as the will of the people, he is moving beyond the law and will need to face the consequences.

Assuming the quote checks out, I can’t even begin to imagine why the Germans would allow themselves to be caught so obviously bullying a neighbour.

After all, it’s not as if they don’t have form. As the Times points out, “A comparison is being drawn in Prague [between Klaus and] Edvard Benes, the pre-war Czech leader who in 1938 had to flee to Britain after refusing to cede territory to Hitler under the Munich agreement.”

- Staying with shifting politics, WPR assesses the potential for changes in Japan’s international outlook, particularly towards the US. The Asia Times examines the domestic machinations and their likely impact on the new government’s foreign policy priorities.

- Elsewhere, the New Yorker talks to Columbia economist, Joseph Stiglitz, about his concerns over the current economic crisis and the need to address not just market failure, but government failure too. Catch the video here. The FT’s analysis section, meanwhile, assesses the flaws in “efficient markets” theory and explores what might take its place.

- Finally, following last week’s round of summitry at the UN, complete with rhetorical flourish from Muammar al-Qaddafi, Foreign Policy has a list of “The Top 10 Craziest Things Ever Said During a UN Speech” – Qaddafi joins Castro, Khrushchev and Ortega among others.

On Russia, for example, Germany has been almost hysterically concerned that the Baltic states would push the EU towards an anti-Moscow stance. In NATO and EU discussions, it has often been German diplomats who have debased the debate, accusing those, like Britain and Sweden, who want a tougher post-Georgia policy towards Russia as wanting to start a new Cold War.

To The Economist, these mishaps are a function of Germany’s political situation. Facing a general election next year, Chancellor Angela Merkel is locked in a battle with the SDP’s likely front-runner and current Foreign Minister Frank-Walter Steinmeier, making every foreign policy issue a battle for domestic advantage. Things have not been helped by the notoriously poor relationship between Mrs Merkel and France’s president, Nicolas Sarkozy, who’s frenetic diplomatic style cuts against the German chancellor’s measured ways.

But the problem runs deeper and may not be solved by the future German elections or the recently held U.S ones. For while the polls show the CDU in the lead, they are sufficiently tight to be able to force another so-called “grand coalition” between CDU and CDU, which would see a re-run of all the foreign policy battles.

The election of Barrack Obama in the U.S is also unlikely to make a big difference. On Iran, Afghanistan and Iraq — trouble-spots that will to occupy the Obama administration’s time —Germany’s position is at best awkward. Germany’s industry still has strong links with Iran; last month Germany’s ambassador to Iran, Herbert Honsowitz, told his Iranian hosts not to worry about Berlin’s announcement that it would reduce trade links as German companies would use the United Arab Emirates as a middleman for more than $4 billion in commerce.

And everyone expects President Obama to ask Germany to send more troops to NATO’s Afghan mission and deploy some of those 4500 soldiers already there to the war-torn south. German diplomats are furiously compiling arguments that would counter such a request –- and may offer police officers instead — but these are unlikely to make too much of an impact when President Obama makes the public case and Secretary Clinton does the follow-up.

Then there is climate change? Mrs Merkel was once seen as of the key reformers, even at one point dubbed “the climate chancellor”. But she is now pushing for parts of Germany’s industry to be exempted from emissions trading. This may put her at odds not only with the Obama administration, but also Congress, now that Democratic congressman Henry Waxman has taken the reigns of the House Energy and Commerce Committee.

Running through all these issues is one big question: what role does Germany want to play in the world? Does it want to be a large Switzerland – unarmed, mediating between all sides, but unwilling to take bold positions, devote resources and make sacrifices? Or does it want to be a key ally for the U.S, Britain and France, a motor of the EU and a pillar of the Euro-Atlantic community?

On my recent visits to Berlin I have become convinced that many of Germany’s politicians know current policy is not working. They also know that many of the world’s problems –- from Russia to Iran –- can only be solved by Germany’s active involvement. However, a large proportion of the public does not want to accept the price that has to be paid for Germany’s freedom, security and prosperity. And German politicians of all hues have been unwilling to make the case as forcefully as required, in part –- but not exclusively — because of the political situation. However, neither Germany nor its allies can afford for Europe’s largest country to walk alone.