Germany’s upcoming election will influence the course and direction of the European Union for the coming decade. Irrespective of the exact make-up of the next German government and who will become the new Chancellor, there has been a growing alignment between the main parties on all the key policy issues. This coalescing policy alignment will also be key to maintaining Germany’s influence in Europe following Angela Merkel’s departure as the principal orchestrator of the EU’s development these last two decades.
On 26th of September, German voters will elect their new government, and for the first time in 16 years also a new Chancellor. While unthinkable only a few months ago, Germany’s centre-left party, the Social Democrats (SPD), which had polled only around 15% for much of the last two years, suddenly surged ahead of the CDU in August, for the first time in 15 years.
Meanwhile, outgoing Chancellor Angela Merkel’s centre-right Christian Democrats (CDU), which had led the last four governments, collapsed in the polls to a meagre 21%, a record low for the party. While nothing has been decided yet, commentators and experts have been busy in trying to make sense of the likelihood of various government coalitions forming after the election and their respective implications on German policies.
While the exact make-up of the next government is of course not irrelevant, there has been a noticeable convergence among all the main parties on how to respond to the key policy challenges facing Germany after the election. These are, first, the challenge of how to reform and strengthen the German economy for the coming decades in light of ever-growing competition from China and an increasingly more challenging international business environment. And second, the question of how to keep Germany secure and able to advance its own national interests in the context of a dissolving liberal international order and rising geopolitical challenges. Then there are the, perhaps equally pressing but related, challenges of trying not to be left behind in the new ‘arms race’ of today, namely the digital revolution, as well as addressing the rise and impact of populist parties with often radically non-centrists agendas across the Western world.
All the main parties have come to agree that the perhaps two most important policy initiatives to address these challenges are an ambitious Green Agenda as the basis for genuine and lasting economic revival and rejuvenation of western economies and further as well as much deeper European integration, including fiscal integration.
Climate Change and the Green Agenda
The Green Deal is believed to provide an impetus to greater, and capital intensive, state-led investments and fiscal spending, and therefore future growth, as well as to a much faster digitalisation of all aspects of the economy and society.
The issues of climate change and the green agenda are thus important across almost the entire political spectrum in Germany and the leading parties are all broadly in agreement on the need for fast-tracking German efforts to tackle climate change and transitioning to clean energy and more clear-cut emissions targets. All the main parties agree that Germany should achieve climate neutrality, reduce greenhouse gas emissions, 100% renewable electricity and focus on turning Germany into a powerhouse for hydrogen technology production.
While the CDU/CSU and SPD are in agreement that Germany should seek to achieve climate neutrality by 2045 and reduce its greenhouse gas emissions by 65% before 2030, they differ on the question of renewables. The CDU wants to accelerate the development and use of renewables but has set no fixed target for completing a transition to using 100% renewable electricity. The SPD wants to achieve this by 2040.
The Greens meanwhile believe it feasible to achieve climate neutrality in under twenty years, to switch completely to renewable power use by 2035 and to cut greenhouse gas emissions by 70% by 2030. They also want 100% renewable power by 2035, exit coal production completely by 2035, install 1.5 million more solar roofs over the next legislative period and only allow emissions free cars to be registered from 2030 onwards.
Given these widely shared and ambitious agendas, we can expect significant fiscal expenditure of the next German government to propel these projects forward and achieve climate neutrality, sooner rather than later.
Germany and Europe
Meanwhile, European integration is judged, even more so than before, as an absolute prerequisite for ensuring Germany’s and Europe’s future internal stability, but especially its influence, indeed self-preservation, in the context of an increasingly challenging international security and economic environment.
Merkel’s talent as a respected policymaker and trusted partner in Europe cannot be replaced overnight.
Notwithstanding the importance of Angela Merkel, however, all the main centrist parties in Germany share a strong commitment to the European project. If anything, a government led by the SPD and Green Party would be slightly more ambitious in promoting European integration efforts, especially with regards to EU fiscal union, a Green new deal and the digital Europe project, than the previous CDU-led coalition governments.
Brexit, four years of Donald Trump in the White House, changing global economic fortunes, a worsening global geopolitical landscape, and especially the still ongoing global pandemic mean that the external environment has changed drastically in recent years. This has resulted in the further convergence of policy positions and attitudes of the main centrist parties in Germany, not least with regards to the importance of a more ‘geopolitical’ EU as it has been announced by the European Commission.
Moreover, the French Presidential elections, in 2022, could have a profound impact on the European Union’s future. In many ways, France is a microcosm of Europe’s deep-seated problems, such as the proliferation of populist right-wing and left-wing fringe parties over recent years, fired up by rising inequality, religious and identity politics, concerns over immigration and rising nationalism. While strong Franco-German relations, not least as the engine of European integration, have always been a strong priority for successive German governments, the centrality of this relationship for German policymakers has further increased in recent years due to the rapidly changing global strategic environment and the dwindling chances that the post-1945 liberal international order and the US security blanket over Europe will survive these changes.
This means that domestic stability in France, and the continuation of a strongly pro-European French Republic are high on any next German government’s agenda. This continuation would be threatened by an election victory of Marine Le Pen, who only recently described Franco-German relations as going nowhere and heading for a divorce, while announcing that she would seek closer relations with the UK instead, should she be elected president. The next German government will thus have to do substantially more, and quickly, in the way of supporting ambitious European integration projects, especially those aimed at a reflation of the European economies after the pandemic, that would allow Emmanuel Macron to make a strong case to the French electorate about the benefits of the European project and the Franco-German relationship.
Towards Eurobonds and an EU fiscal union
Germany, as an export champion, has of course always been one of the most committed proponents of the liberal international order, and especially of global free trade. The severity of the global challenges to this global free trade order, it appears, have clearly led to somewhat of a rethink in German policy circles.
This is particularly evident on questions of fiscal policy and the importance of a strong European economy, including in southern member states, for Germany’s own future wellbeing and, of course, to prevent the centrifugal forces in the EU from pulling the Union apart. While opposition to turning the Eurozone into a transfer union still exists in Germany, none of the three candidates that are in the running to become the next German Chancellor share the former dedication, especially widespread in the CDU/CSU and FDP, to the so called Black Zero and opposition to more activist fiscal policies across Europe. In the context of pandemic, even the outgoing CDU-led German government already supported the adoption of the €800 billion-strong NextGenerationEU programme.
In what must be regarded as a genuine success story for European cooperation and solidarity, an agreement was found between the so-called anti-debt club and proponents of greater debt financing and the loosening of the Maastricht criteria over how the money should be dispersed. They agreed on a formula by which around half of the money to be spent would be in the form of grants while the other half in the form of loans. Most importantly, however, has been who and how this debt is being raised. For the first time ever, the so-called Covid-19 bonds are being issued by the European Commission as mutualised debt instruments, effectively as Eurobonds. Four tranches have so far been issued since July of this year to a total of €45 billion, with some oversubscribed by as much as 11 times. The first so-called Green bonds, which will be used for environmentally friendly reforms and investments, are said to be issued next month, with the aim of raising a total of €250 billion of the total 800 billion through these securities over the next five years.
While the NextGenerationEU programme is, for now, still limited to the agreed €800 billion, it is more likely than not that this programme represents the onset of a genuine EU federal budget financed at least in part by mutualised bond issuances, which would give rise to a genuine fiscal union. The Coronavirus crisis has most certainly spelled the end of the decade-old pretensions of austerity in Europe, championed not least by previous German governments. It also marks the beginning of a new era of greater fiscal spending to complement, or even replace, the extremely accommodative monetary policies of recent years. That this might indeed already be in the works can also be gleaned from the ECB announcing that it would start lowering its asset purchases under the PEPP from Q4 2021, in fact following in the footsteps of the US Federal Reserve, which has also announced that it will soon start tapering its massive QE programme.
The next German government, irrespective of which governing coalition will eventually emerge, will almost certainly stay on this path and at the very least acquiesce in the Eurozone finally giving rise to a genuine fiscal union and with a significant federal budget. While this will certainly not be welcome news in the capitals of the more fiscally conservative Eurozone members, which have collectively been nicknamed the anti-debt club, and to which Germany also prominently belonged, it does indeed appear as if Germany has switched sides. The next German government will most likely be more open and responsive to southern European calls for greater budgetary leniency and European debt mutualisation than any previous German government.
Germany between the US and China
On broader questions of foreign policy, and Germany’s and Europe’s role in the world, however, there exists far greater uncertainty. The question of Germany’s geopolitical orientation, whether that be towards its traditional transatlantic ties or rapidly increasing economic dependency on China, has long been dodged by Berlin. Nevertheless, it is likely to become ever more pressing in coming months and years. This is not least due to increased US pressure on European leaders to take a clearer stance against China.
While the CDU/CSU and SPD continue to try and downplay this question, keen on achieving a healthy balance between the US and China, the only Party that has taken a clear position in this regard is the Green Party, which has criticised the current government for not taking a stronger stance against China’s alleged human rights abuses, authoritarian style of governance and its growing efforts to buy up critical European infrastructure and companies.
German-UK relations after the election
But what will the outcome of the German election mean for German-UK relations in years to come?
One can only foresee that German-UK relations are unlikely to markedly improve, and could actually worsen further. Traditionally, there has been a longstanding hope among most conservative British commentators that a CDU victory, in any German election, would serve Britain’s political and economic interests However, this has now ceased to be the case, especially since Brexit.
Even so, an SPD-led government would probably be less willing to entertain British interests and sensitivities when it comes to any future negotiations surrounding the EU-UK Trade and Cooperation Agreement than the CDU or Liberals. This would affect talks on resolving controversies over the Northern Ireland Protocol, the future of financial equivalence or indeed the latest potential disagreement over the British government’s announced revisiting of its data regulations.
The next few years are set to be decisive for Europe, and the decisions taken in Berlin by the next government will play an important part in the outcomes. The fault lines internationally, within Europe and domestically are hardening. The centrifugal forces pulling away at the old international order and the West’s own liberal-democratic political systems and, generally, strong middle classes economies are forming into a perfect storm. The Coronavirus pandemic has reinforced these existing trends.
It is in the context of these challenging times that the main German parties are increasingly converging on the answers to these challenges. This is probably a good thing, allowing for a decisive and unified German approach to these issues and preventing any radical and unpredictable policy shifts that would weaken Germany, and weaken Europe.
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