• Tue. Oct 26th, 2021

What future for German political economy after Merkel?

ByChris J. Taylor

Sep 17, 2021

Whether in life, business or politics, Germans are – on the whole – culturally averse to risk and uncertainty. This makes this year’s federal election a rare and glaring exception. With just over a week, there are two kinds of people in Berlin: those who admit to having no idea of ​​the next government Germany will have – and the liars.

For the first time in 15 years, the center-left Social Democratic Party (SPD) leads the polls, with 25-26% support, while the center-right Christian Democratic Union (CDU) accuses a delay of 2 to 4 percentage points. Whoever finishes first on the evening of September 26 will set the direction for what will follow in the exploratory talks, eventual coalition and subsequent policy.

A wild card is the departure of Angela Merkel after four terms, which means, for the first time, that no incumbent is running for re-election.

Despite the dynamics of the SPD with its top candidate Olaf Scholz, it is however not at all certain that the outgoing Federal Minister of Finance is the next German Chancellor.

Instead, Scholz, like his CDU rival Armin Laschet, has one last week to find the winning mix of continuity and change most acceptable to German voters on three key topics: climate protection, social pensions and economic policy.

Even with one in six voters still undecided and all to play with, this election will dictate the political and economic agenda across the continent and beyond.

With weeks – if not months – of coalition talks looming in Berlin after the election closes, there is already a palpable mood of future nostalgia for the 16-year-old Merkel era.

Pandemic-catalyzed Merkel’s recent years have seen Berlin widen its gaze with an obsession with balanced budgets

Some call it a second Wirtschaftswunder era or economic miracle. At 6 percent, unemployment is half of what it was when she took office in 2005; Meanwhile, his government’s quick and pragmatic economic policies helped Europe’s largest economy quickly – twice – recover from existential shocks.

The 2009 financial crisis triggered a 6 percent contraction in GDP that year, immediately followed by a 4 percent jump. Germany has avoided recession during the euro crisis as last year’s pandemic collapse of nearly 5% will turn into growth of between 2% and 3% – squeezed by the global material shortages.

Upstream infrastructure

Yet many German economists say all is not well in Germany. They see Merkel’s fourth term – her CDU’s third grand coalition with the SPD – as a period of stasis and slippage in the country’s competitiveness.

All election promises on tax and pension reform recognize, some more explicitly than others, the key points of Merkel-era neglect. It is also widely believed that key areas of Germany’s physical and digital infrastructure are desperately backward and have been exposed as such during the pandemic.

While the main parties point out their differences on the political track – the SPD pushes a minimum wage of € 12 and rent controls; Greens want companies to take a big green leap forward – a closer look at the political offers reveals the extent of the overlap.

When it comes to tax and pension reform, the left / right debate is most evident while, on infrastructure and investments at national and European level, the differences are more about how to finance national investments.

The CDU and the Liberal Liberal Democratic Party are in favor of ending a suspension during the so-called “debt brake” pandemic. This limits the ability of German governments to take on debt by requiring an annual budget deficit of less than 0.35% of GDP.

While the brake is a priority for the FDP, the CDU remains unclear on its timetable. Greens want ambitious debt settlement reform while the SPD, while open to change, dwells on the details.

At EU level, the CDU and the FDP oppose any idea of ​​budgetary union and want a return to budgetary rules in the euro zone; the SPD and the Greens propose a more flexible Stability Pact for euro members, adding sustainability measures. While a center-left SPD-Greens alliance is more open to the idea of ​​the EU raising its own resources, the CDU / FDP insists that pandemic-era moves in this direction were ad hoc.

Despite all the debate, many German economists see all of this more as shadow-boxing than as genuine, deep and unbridgeable political differences – given that each party is, for now at least, theoretically a future coalition partner of the others. .

“Destroy prosperity”

Catching up in the polls, CDU leader Laschet warned voters that any center-left government without his party’s participation “would destroy prosperity.” But even he softened the CDU’s positions on once controversial issues. While the green debate in Germany was once divided into jobs or climate lines, the disastrous summer floods prompted the CDU chief to speak the language of the Greens and the SPD. This week he offered interest-free loans to homeowners to install solar panels on the roof and called on Germany to be “a climate-neutral industrial country that secures the jobs we have, creates new jobs and does it all. in a socially consistent manner “. .

The political and economic debates of this campaign were much less emotional than the early Merkel years. Even the pandemic-induced German inflation spike – traditionally a hotspot in the German debate, given the historical trauma – has sparked some backwaters of concern in the media, but no panic. The efforts of the far-right Alternative für Deutschland (AfD) to move the issue forward have faltered. It emerged ten years ago during a heated debate over buying bonds during the euro crisis, when Germany was often an outlier in the eurozone’s emotional economic discourse. Today, a new generation of economists and media commentators has pushed Berlin politicians into the mainstream of Europe.

The last few years Merkel, catalyzed by the pandemic, have seen Berlin widen its gaze with an obsession with balanced budgets, the so-called “black zero”.

Regardless of Berlin’s next administration, Irish officials expect post-Brexit bilateral trade boom to continue

The post-election ‘debt brake’ battlefield will take place in a country where support measures to tackle Covid-19 have pushed Germany’s debt-to-GDP ratio above 70% this year , compared to just under 60% in 2019.

How to pay off some of this debt while funding investment plans will be the big debate for any new government.

“There is a lot more differentiation in economic thought and not so much ordoliberal black and white thinking,” said Dr Ferdinand Fichtner, professor of macroeconomics and economic policy at the Berlin Academy of Applied Sciences (HTW) .

Despite huge European expectations of the German vote, Fichtner said even Chancellor Scholz – a centrist of the SPD – probably wouldn’t stray too far from Merkel on key politics.

Tax integration

“Scholz is still Scholz and I don’t see Scholz giving too much,” he said.

Financial analysts agree, with ING’s Carsten Brzeski predicting an evolution rather than a revolution in Berlin’s engagement with Brussels and its European partners.

A CDU-Greens government would be less energetic than a SPD-Greens coalition to make the European Recovery Fund a permanent element while pushing for closer fiscal integration.

“The big German push for more euro area fiscal stimulus will come with a ‘Germany first’ investment program and trickle down effects for the rest of the euro area, rather than a ‘euro d’ push. ‘first,’ suggests Brzeski.

Regardless of Berlin’s next administration, Irish officials and government agencies expect the post-Brexit boom in bilateral trade to continue.

Last week, Tánaiste Leo Varadkar completed a three-day European trade tour of Germany, Ireland’s third-largest trading partner for goods and services, accounting for 11% of Irish exports, totaling around € 25 billion per year.

If we add Germany as the second largest supplier of foreign direct investment (FDI), the relationship will be a key part of the Irish export stimulus package.

“Ireland has strong and integrated trade links with Germany and we intend to strengthen them further,” Varadkar said in Berlin. “After Brexit, our two countries are closer than ever.”

For Manus Rooney, Country Director of Enterprise Ireland for Germany, there is a night and day difference in bilateral trade relations compared to ten years ago.

“The big difference is the appetite of customers to put resources on the ground here, when they come to market they’ve really done their homework,” he said. “What has always struck me about Germany is their boring consistency in being stable and tough. If you want to rebuild your business after Covid, there is no better place than Germany.


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