The collapse of Germany’s deeply unloved and dysfunctional three-party coalition offers Europe’s biggest economy an opportunity for political and economic renewal. Two important questions arise: Would Germany put aside political squabbles and grab its golden opportunity, and if so, what can and should it do?
On the first point, I am not entirely confident. On the second, there is no shortage of bold and sensible ideas — reforming Germany’s debt brake to fund investment, stemming an exodus of capital and properly funding the country’s military are obvious places to start.
While Christian Democratic Union (CDU) leader Friedrich Merz is most likely to become Germany’s next chancellor, the CDU and its Bavarian partner the Christian Social Union are polling at about 32 percent and could not govern alone.
The increasing fragmentation of German politics — first via the rise of the far-right Alternative for Germany (AfD) and more recently the far-left, anti-migrant Sahra Wagenknecht Alliance — makes coalition building especially tricky.
Merz, a business-friendly Atlanticist with a famously short fuse, rightly rules out governing with the AfD; meanwhile, the business-friendly Free Democratic Party are polling so badly they might fall below the 5 percent hurdle required to get seats in parliament.
Hence Germany’s next government is likely to be another coalition of uncomfortable bedfellows, with the conservatives ruling either with the Social Democratic Party or the Greens among the possibilities.
After the, at times maddening, political ructions of the past three years, I would not blame voters for fearing we would then be back to the same tired debates and lack of political consensus.
Merz is clear-eyed about the threats to German prosperity, but I worry much of the electorate still does not fully appreciate the mess the country is in. It is tempting for them to view Germany’s economic troubles as cyclical, when the reality is they are structural and therefore difficult to fix.
A combination of weak productivity growth, decrepit infrastructure and an aging workforce means economic output risks stagnating for years to come. Meanwhile, the country’s traditional industries — above all its automotive companies — face massive threats to their competitiveness. Even Volkswagen AG, which long prioritized job preservation over making money, is considering closing German factories.
There is a danger of a vicious cycle. Weak growth and capital flight lead to lower tax receipts, which in turn creates intractable rows about how the economic pie should be divided — as could be seen time and again when Germany tries to pass a budget.
In other nations, the solution would be obvious: borrow more to fund investment. However, that has been a non-starter due to the country’s debt brake, which limits new debt to no more than 0.35 percent of GDP each year (albeit with some limited flexibility to accommodate emergencies and the economic cycle). This is needlessly restrictive given German borrowing is low by international standards. So my first plea to Germany’s next government is simple: For goodness sake, reform the debt brake.
Merz’s conservatives are sticklers for balanced budgets, but recently its leader has sounded ever so slightly more amenable to revising the debt limit (while continuing to insist that Germany also makes more of an effort to control social welfare spending.)
German Minister of Economic Affairs and Climate Action Robert Habeck has proposed establishing a fund to bolster domestic investment by offering companies a 10 percent subsidy.
While Habeck’s idea is worth considering, it would require fiscal firepower. Loosening the debt brake would also make it easier to renew Germany’s military, ensuring it could properly defend itself and support Ukraine.
While Berlin this year would meet its NATO commitment of spending 2 percent of GDP on its military for the first time in decades, the return of US president-elect Donald Trump to the White House adds to the imperative for Germany to fulfill its responsibilities.
If Merz insists on keeping the debt brake, there are other ways to mobilize capital. As I have argued before, Germans are sabotaging their own prosperity and the corporate sector by squirreling away billions of savings in low-yielding bank accounts.
While recently deposed German minister of finance Christian Lindner was often a troublesome thorn in the coalition’s side, his ideas to create more of an equity ownership culture and reform the country’s pay-as-you-go pension system were refreshing and should not be ignored.
Happily Merz — a former corporate lawyer and supervisory board chair of BlackRock Asset Management Deutschland AG — knows a thing or two about capital markets.
A cull of housing regulations to spur more construction should be high on the next government’s agenda, as Germany is falling woefully short of the needed 400,000 new homes a year, and about half of the population remains locked out of the housing market.
Berlin must also redouble its support for start-ups: Small and medium-sized enterprises known as the Mittelstand remain the backbone of German innovation, but the number of new businesses being founded is shockingly low.
Finally, a new government should reassess the nation’s energy policy. In what must be one of the most self-defeating moves of the post-reunification era, the three-party coalition went ahead with the closure of Germany’s last three nuclear power plants last year — even amid a worsening climate crisis and the loss of gas imports caused by Russia’s invasion of Ukraine.
Switching those plants back on again might be technically and politically difficult — but it would signal recognition by Germany that the time for timidity and false compromises is over.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
A high-school student surnamed Yang (楊) gained admissions to several prestigious medical schools recently. However, when Yang shared his “learning portfolio” on social media, he was caught exaggerating and even falsifying content, and his admissions were revoked. Now he has to take the “advanced subjects test” scheduled for next month. With his outstanding performance in the general scholastic ability test (GSAT), Yang successfully gained admissions to five prestigious medical schools. However, his university dreams have now been frustrated by the “flaws” in his learning portfolio. This is a wake-up call not only for students, but also teachers. Yang did make a big
As former president Ma Ying-jeou (馬英九) concludes his fourth visit to China since leaving office, Taiwan finds itself once again trapped in a familiar cycle of political theater. The Democratic Progressive Party (DPP) has criticized Ma’s participation in the Straits Forum as “dancing with Beijing,” while the Chinese Nationalist Party (KMT) defends it as an act of constitutional diplomacy. Both sides miss a crucial point: The real question is not whether Ma’s visit helps or hurts Taiwan — it is why Taiwan lacks a sophisticated, multi-track approach to one of the most complex geopolitical relationships in the world. The disagreement reduces Taiwan’s
Former president Ma Ying-jeou (馬英九) is visiting China, where he is addressed in a few ways, but never as a former president. On Sunday, he attended the Straits Forum in Xiamen, not as a former president of Taiwan, but as a former Chinese Nationalist Party (KMT) chairman. There, he met with Chinese People’s Political Consultative Conference Chairman Wang Huning (王滬寧). Presumably, Wang at least would have been aware that Ma had once been president, and yet he did not mention that fact, referring to him only as “Mr Ma Ying-jeou.” Perhaps the apparent oversight was not intended to convey a lack of
Chinese Nationalist Party (KMT) Chairman Eric Chu (朱立倫) last week announced that the KMT was launching “Operation Patriot” in response to an unprecedented massive campaign to recall 31 KMT legislators. However, his action has also raised questions and doubts: Are these so-called “patriots” pledging allegiance to the country or to the party? While all KMT-proposed campaigns to recall Democratic Progressive Party (DPP) lawmakers have failed, and a growing number of local KMT chapter personnel have been indicted for allegedly forging petition signatures, media reports said that at least 26 recall motions against KMT legislators have passed the second signature threshold
RSS