Merkel Wakes Up to Hangover

This was written on 24 September, two days after Angela Merkel’s election triumph. At time of posting 29th September it is clear that far from emerging as the triumphant mistress of the German political scene she now has endless problems. The classic Black (CDU/CSU) coalition with the Yellow FDP which governed Germany as a moderate centre-right power block has been  smashed. And more and more commentators in Germany are asking if Mrs Merkel’s ultra-cautious mode of government (what I called more Vorsicht than Vorsprung) may have killed off the liberal FDP as they clearly had no influence or real role in Germany. At all events, it looks like a Black-Red allliance with the SPD demanding six government posts including the key Finance Ministry currently occupied by Wolfgang Schaeuble, the hammer of the southern European economies. In Britain we are fixated with the bubbles of our party conferences so we do not notice that Germany is without an effective project, Italy is in meltdown, France may be gently turning the corner as Hollande adopts more realist policies and we have in 2014 the biggest year of choosing Europe’s leaders ever – a new Parliament, a new Commission, new presidents for EU bodies. Meanwhile out Sunday paper obsess with the Jewishness and period Marxism of Ed Miliband’s papa.

The Real Decisions in Germany Were not Taken on Sunday

 

Now Germany awakes to the real time of decision.  The voters gave Angela Merkel a wonderful present on Sunday but Christmas only lasts one day. She knows that a majority of votes went to left-of-centre parties. The economic liberals in the FDP were booted out of parliament. The anti-Euro AfD like the internet libertarian Pirates failed to enter the Bundestag.

Before the election Europe’s watchword was waiting for Merkel. Now she has to wait for the Social Democratic Party’s special congress on Friday. SPD members will decide whether to permit the party leaders to enter a Grand Coalition. If the answer is Ja there then follows tough negotiations over the terms and programme of the coalition.

The SPD may yet baulk. They gaily entered a Grand Coalition with Merkel in 2005 and were quickly swallowed up and spat out into opposition four years later. Many in the SPD think those four years vitiated the party’s purpose and do not want to repeat the experiment. The party also has too many chiefs. Sigmar Gabriel is party leader. Peer Steinbrück was chancellor candidate. Frank-Walter Steinmeir led the party in the Bundestag and was Vice-Chancellor and Foreign Minister under Merkel between 2005 and 2009.

The SPD is also unhappy about the labour market reforms associated with Gerhard Schroeder. These liberalized the labour market by maximizing flexiblity, introducing low-pay insecure jobs and freezing industrial wages. The reforms suited German firms and allowed Germany to be better placed to survive the crash and subsequent recession after 2008. But they led to significant loss of support for the SPD amongst its core industrial worker and modestly paid public service electorate.

So if the SPD go into a coalition it will be on the basis of posts and policy. Instead of the now largely decorative foreign minister position which in a Germany that has given up geo-political ambitions and is content with a foreign policy along Swiss or Norwegian lines, the SPD will demand a top domestic and EU policy slot such as economics or finance minister. The SPD’s core belief is that Sozial – social is as important as Markt – market in the modern economy so will seek to secure minimum wage legislation and no dilution of the Mitbestimmung (co-determination) model which places workers and trade union bosses on company boards.

Martin Schultz, the German social-democratic president of the European Parliament, and the possible European centre-left candidate to be president of the European Commission, has already declared that the price for the SPD to enter a coalition is relaxing Berlin’s austerity ideology. Since 2009, under the eagle eye of the hardline finance minister, Wolfgang Schaeuble, Berlin has refused to cut any slack for poorer Eurozone countries. Instead Berlin has preferred to keep whole nations in a latter-day debtors’ prison even though much of the cheap Euros were provided by German banks and much of the debt is owed to German firms, including arms industry exporters, who flooded Greece with pointless weaponry and infrastructure projects in the years before 2008.

It is far from clear that the SPD, which is also orthodox in most economic and fiscal policy will radically alter Berlin’s Eurozone policy but change will come.

Merkel has never shown much interest in classic liberal economics and the disappearance of the FDP de-liberalises still further German economic thinking.

At the end of July Die Welt published my article Deutschland erlebt die Merkel-Dämmerung – the Twilight of Angela about why I thought Mrs Merkel’s glory years were behind her and even with her expected election victory there were only difficulties ahead for Germany. David Marsh, Britain’s best-informed commentator on Germany has made the same point in his column for his banker’s think-tank OMFIF. This is not an anti-Merkel attack as she is a remarkable politician but her innate caution, which has paid off in winning support, is not going to change. There was a remarkable German TV documentary on German chancellors which had footage of Mrs Merkel going bathing on holiday in Italy. She enters the pool very gingerly, one step at the time, clutching the guide rail as she edges into the water while her husband looks on. It symbolises Mrs Merkel’s cautious approach, always testing the water before going further.

This will not change and those hoping for a radical new approach are likely to be disappointed. These include French socialist ministers who want to entice Germany into a new generosity and increase loans, credit and transfer payments to reboot the moribund Eurozone. But while Germany is rich, Germans are not. They have paid a solidarity tax of 5.5 per cent for 20 years to support East Germany and are not about to pay a Eurozone solidarity tax to suit Paris.

Germany will be flexible on new EU policy and even institutions but only up to the point where its Constitutional Court says a new EU Treaty is needed to provide a legal basis for new European payments, rules and institutions. A new Treaty requires referendums in too many countries notably France and there is now plebiscite fatigue everywhere in Europe. François Hollande will not risk a referendum before 2017, when he faces re-election, also the year Merkel, if she does not stand down after a decade at the top in 2015, has to go to the polls.

The exception to European wariness on populist referendums is of course Britain. David Cameron’s promise of an In-Out referendum in 2017 is based on a major renegotiation and repatriation of powers which he can present to the people as a new EU refashioned along the Eurosceptic lines of the current British cabinet with William Hague and Iain Duncan Smith maintaining the Conservative’s Eurosceptic faith.

Before then we have the summer of EU elections in 2014 when the three EU presidents (Commission, Council and Parliament) are chosen as well as a new European Parliament which the CDU and German politicians take much seriously than do the British or French political classes.

Mrs Merkel’s only ringing or memorable phrase is her statement that ‘If the Euro fails, Europe fails’ so Germany will do what it takes within its own limits to keep the Eurozone together. But major concessions to Paris or London are unlikely.

Denis MacShane is the UK’s former Europe Minister

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