Finally, Germany has a government. Almost. After a last-ditch effort by Chancellor Angela Merkel’s centre-right Christian Democrats (CDU) and the centre-left Social Democrats (SPD) agreed to yet another “grand coalition” of the two main parties.
Some four-and-a-half months since the election, the world’s fourth-largest economy, the Eurozone’s powerhouse and paymaster, has leadership. Perhaps. For the final say on the SPD’s participation lies with its 460,000 rank-and-file members. Results of a postal ballot are due in early March. And there’s no guarantee that SPD members will play ball.
Having led the CDU since 2000, and her country since 2005, Merkel is a political giant. Yet, her power is waning badly. The CDU had won just 33 per cent support in September’s general election — 8.5 percentage points down on 2013 — while the SPD managed only 20 per cent. This was the worst showing for Germany’s two main parties since the Second World War.
The reason, of course, was the emergence of Alternative fur Deutschland (AfD) as the third-strongest force. Formed only in 2013, AfD had already secured seats in 14 of 16 regional parliaments before last year’s general election — in which it shocked the German establishment by taking 12.6 per cent of the vote. As such, a hard-right party now controls 94 of the 598 seats in the Bundestag — along with the chairmanship of three parliamentary committees. No one wants this coalition. CDU members are outraged at concessions Merkel made to cling to office, handing the SPD control of vital ministries including finance and foreign affairs. Much of the SPD, meanwhile, feels being in the 2013-2017 grand coalition damaged the party’s reputation. Some 24,000 people have joined the SPD in recent weeks, many hoping to block a new grand coalition. And the party’s “young socialist” youth wing is running a vigorous “no” campaign.
The alternative, though, is worse — another election. With the SPD polling at a historically low 17 per cent, and the public tiring of Merkel, that could see more AfD gains — resulting in the upstart populists possibly elbowing their way into government, if only as a junior partner. And the entire point of this grand coalition is to keep AfD at bay. After 12 years of Merkel, though, eight of them in an SPD coalition, an air of fatigue hangs over German politics. AfD has exploited this lack of dynamism and, above all, a refusal by the German establishment to address issues of widespread concern.
After the biggest influx of immigrants into Europe in 70 years, the burden falling heavily on Germany, there is widespread outrage about high refugee numbers. German-funded bailouts to other Eurozone members are another common grievance harnessed by AfD. There is much concern also about ongoing quantitative easing (QE) money-printing by the European Central Bank (ECB), still running at tens of billions of euros each month, with the related negative interest rates hitting Germany’s army of savers. Having shown less enthusiasm for both the CDU and the SPD than in any election for decades, German voters are being served up yet another grand coalition. As the main opposition party, AfD will use this to claim that power, once again, has been sewn up by entrenched, out-of-touch elites.
Ironically, Germany’s slow-motion political crisis is happening amid an economic upswing. Having lagged for several years, Germany expanded by 2.5 per cent in 2017, a six-year high. Exports are buoyant amid signs of recovery across the Eurozone. A fiscal surplus of euros 38.4 billion (Dh176.81 billion) in 2017, around 1.2 per cent of gross domestic product, provides wiggle room to trim the tax burden and increase spending.
But German inflation has also risen, up from 0.5 per cent in 2016 to 1.8 per cent last year. While the ECB has been trying to generate inflation, this sharp increase has raised eyebrows in Germany — where cultural aversion to inflation runs deep. The debate between Berlin and the ECB, then, is about to get even more heated. With inflation across the Eurozone still around 1 per cent, and set to fall, the central bank’s chief economist Peter Praet week before last signalled that QE may need to extend beyond its agreed September cut-off point, a deadline that has already been many times extended.
From the other side of the Channel, it seems as if Brexit is the biggest problem facing the European Union (EU). It isn’t, not by a long chalk. The EU’s greatest challenge relates to the structural incoherence and ongoing instability of the single currency — which can only be solved by a system of massive annual transfers from wealthy Eurozone members to poorer nations. The rest of the EU, led by France, expect Germany to solve this problem. Unless Germany gets a new electorate, or abandons democracy, that isn’t going to happen. On top of that, continental politics is increasingly plagued by xenophobic nationalism — not just in Germany, but also Italy, Spain, Greece and Eastern Europe — fanned partly by the migrant crisis, and also anger towards bailout conditions Germany has imposed on other members.
The Eurozone is still harbouring a slew of bad bank debt, certainly compared to the United States and United Kingdom. If this correction on financial markets continues, and panic spreads, the Eurozone will no doubt suffer disproportionately. A flashpoint could come in four weeks’ time, when Italy holds a long-delayed election. The populist anti-EU, fiscally incoherent Five-Star Movement is ahead of everyone else in the polls.
Germany’s grand coalition, even if it gets going, could well crumble long before the 2021 elections — the result of voter discontent, a renewed Eurozone crisis, or a combination of the two. The Merkel era, synonymous with a strong and stable Germany, is almost over. We have no idea what’s to follow.
— The Telegraph Group Limited, London, 2018
Liam Halligan is a British economist, journalist and broadcaster.
