TRAFFIC LIGHTS, OR MARRIAGE OF INTEREST

The new German coalition government made up of the representatives of parties with certain program differences stated that the alliance was based on a strong determination to upgrade the country while maintaining stability. Definitely, the term ‘stability’ implies the continuity of Angela Merkel’s policies implemented in the last sixteen years of her tenure.

The head of the Social Democratic Party of Germany (SPD), Olaf Scholz, has been quite successful in the past three years of his collaboration with Angela Merkel as the Vice-Chancellor Germany, which eventually contributed to the victory of his party. Voters have therefore appreciated Scholz’s work as a vice-chancellor, having elected him Merkel's successor, and preferred him over the new leader of the Christian Democratic Party of Germany (CDU), Armin Laschet.

Crisis manager during stagnation

We yet to see a comprehensive study of the Merkel era in the history of Germany and Europe.

It is hard to believe that Germany, Europe's largest and most successful economy now, was known to be the "sick man of Europe" in the late 1990s and early 2000s, CNBS reports. In 2019, according to Eurostat, almost a quarter (24.7%) of the total GDP of the European Union was produced in Germany.

During Merkel's tenure, Germany's export-oriented economy grew steadily and left behind its main competitors—the UK and France. Since Merkel’s first days in the office back in 2005 till the COVID-19 pandemic in 2020, the German GDP grew from €2.3 to over €3.3 trillion. During the same period, the unemployment rate in the country fell from 11.1% to 3.8%.

Merkel has earned a reputation of an anti-crisis manager praised not only in Germany but also in Europe. The EU has gone through many disagreements between the member states, including the issues concerning fiscal and economic policies, emigration, the rule of law, the Brexit, etc.

"Merkel was a compromise machine. When we hit a dead-lock during the negotiations, she would definitely find what united us to move on," Luxembourg Prime Minister Xavier Bettel said recently.

To confirm Mr. Bettel’s words, it was thanks to Angela Merkel’s active involvement that the participants of the July 2020 EU Summit could get an unprecedented agreement on the gigantic budget of €1.8 trillion to restore the European economy hit by the coronavirus pandemic.

But apparently not everything was ideal during Merkel’s rule. Otherwise the new coalition government would not think of "making more progress" for Germany after the years of stagnation?

On the one hand, the almost zero inflation rate and the decreasing unemployment rate during these years are a sign of a well-managed economy. Nevertheless, economists believe that the GDP growth has been significantly lower than expected given that Germany had a large trade surplus. In other words, Germany could spend more on stimulating consumption and investment.

But Merkel’s Germany has been strongly committed to a balanced budget rule known as Schuldenbremse (debt brake). In essence, both the German federal government and the governments of states were not allowed to have a budget deficit. For decades, both public and private investment in German fixed assets have declined as a percentage of GDP, despite a huge trade surplus.

As a result, the lack of investment pushed hard on the German economy, as the low growth rates show. Germany had 0% growth rate in 4Q2019. Thus, despite Germany's financial prudence and considerable trade surplus, the Merkel period, according to many economists, cannot be regarded as a success story. They believe that this was a period of long stagnation.

Well, how else can one explain the situation when the country's healthcare facilities are still communicating... by facsimile machines! This shocking news got publicity in the first days of the pandemic. In addition, Germany has one of the worst mobile and Internet coverage in Europe.

Traffic lights

The new German government is nicknamed the Traffic Light Coalition because of the traditional colours of the member parties: red for Social Democrats (SPD), yellow for Free Democrats (FDP) and green for Alliance-90/Greens.

The three parties have very different political positions and views on how Germany should be governed. Many believe that the consensus reached between the parties was nothing more than a miracle. After months of intense negotiations, the parties seem to have reached mutually acceptable compromises.

Thus, thanks to mutual concessions, the coalition government promised, at the request of the SPD, to raise the minimum wage from €9.6 per hour to €12. The Greens secured a commitment by other members of the coalition to stop the use of coal energy 8 years earlier—before 2030. FDP leader Christian Lindner received the third most important position in the government after the chancellor and his deputy—the post of Minister of Finance. He will both be responsible for the annual budget and defend the conservative views of his party in financial matters.

The German government consists of 15 ministries plus the head of the cabinet (chancellor) and his deputy. Portfolios in the coalition government are distributed according to the percentage of parties in parliament. Thus, the Social Democrats received 7 seats, including the post of chancellor, the Greens - 6, including the post of vice-chancellor, and FDP - 4 seats only.

As promised in his campaign speeches, Olaf Scholz, for the first time in Germany the cabinet is balanced by gender—it has the same number of men and women in the government.

This means that for the first time women have become the heads of some ministries: Social Democrat, Nancy Fäser, became the Minister of Interior, while the co-chair of the Greens, Annalena Bärbock, was appointed the Minister of Foreign Affairs. For the first time, an ethnic Turk, Cem Özdemir, a member of the Green Party, became a federal minister of Germany responsible for agriculture.

New Marshall Plan

Two of the biggest challenges for the new government will be recovering from the pandemic and achieving zero carbon emissions.

Both tasks are not easy, given that the measures to meet environmental obligations will definitely not stimulate economic development. Rest assured, politicians understand this when they make populist statements.

In 2019, at the UN General Assembly, the member states agreed to stop greenhouse gas emissions by 2050. This year Merkel promised that the German economy will bring emissions to zero by 2045. Under pressure from the Greens, the new government promised to stop using coal as early as 2030, and nuclear power even earlier—by 2022.

To hedge the economy from the effects of such a hasty abandonment of coal and nuclear power, the Scholz government, along with accelerating the development of renewable energy sources, plans to launch large-scale construction of new power plants working on gas in the coming years. His intentions received a lot of support from large German companies.

For example, the Federal Association of German Industry (BDI) submitted to the government a program of structural reforms and investments, which will require additional private and public investment in the amount of €860 billion by 2030, which is approximately €100 billion, or 2.5% of Germany's annual GDP... According to experts, we are expecting the largest transformation in the post-war history of Germany, comparable with the Marshall Plan introduced in 1948-1951 and with the economic support of the former GDR after the unification of the country in 1990-2003.

The three ruling parties also want to completely fix the country's immigration policy: encourage immigration, broaden the rights of the people seeking asylum in Germany, and make it easier for foreigners to obtain citizenship. At the same time, the government promises to intensify efforts to deport non-asylum immigrants.

Against China and Russia, but supporting the South Caucasus

Judging by the pre-election rhetoric, the parties in the coalition pay more attention to the state of domestic affairs than to foreign policy.

Relations between France and Germany "will be stronger" under the new coalition government than under Angela Merkel, while the next German government will be "deeply European." This is the opinion of the former SPD leader Martin Schultz. Germany, with its new leadership, is also expected to support European integration and move closer to the United States in putting pressure on China and Russia.

Although Annalena Bärbock, the new German Foreign Minister, has yet to develop a policy strategy on China and Russia, it is known that it will be different from that Merkel's, which was focused on economic interests rather than the democratic values of human rights and freedom of speech. All the members of the coalition, who criticised the previous government for its intention to conclude an investment agreement with China and support the Russian gas pipeline Nord Stream 2, are now in solidarity on this issue.

In addition, according to Sarah Pagung, an expert on Russia at the German Foreign Policy Society in Berlin, the Greens led by Bärbock are more focused not on Russia, but on the Eastern European states, including Ukraine, Moldova, and the South Caucasus. So we can assume that there will be a shift in priorities—from Moscow to other capitals.

Merkelism is not relevant any more

A recent poll by the European Council shows that EU citizens view Germany as a reliable pro-European power. They have high expectations and trust the German leadership. Merkel's rule has diminished the fears of neighbouring countries of German domination and now Europeans tend to view Berlin as a consolidating force.

But Merkel's policy of compromises while avoiding tough decisions is no longer relevant. Obviously, it is impossible to solve many of the existing problems in Europe using such methods. Fighting the pandemic, climate change, and growing geopolitical competition requires not only cosmetic changes, but more radical solutions.

Paradoxically, in order to meet the expectations of many Europeans, Berlin will need to rethink the principles of Merkelism that have created this very trust in Germany and its leadership.

In future, Germany will be more interested in implementing a common European foreign policy to demonstrate that it cooperates with China, Russia, and the US primarily to defend European interests, not just those of its own, as was the case under the Merkel rule.