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Mathew D. Rose: Germany’s Potential “Grand Coalition” – Bad for Germany and Europe

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By Mathew D. Rose, a free lance journalist in Berlin

In Germany, Angela Merkel’s Christian Democratic Party and its sister party the Bavarian Christian Social Union are inexorably heading for a “grand coalition” with the Social Democrats. This would give the coalition well over a two-thirds majority in both houses of parliament, making constitutional changes a mere formality. What does this mean for Germany and what will its effect be upon the European Union and a resolution of its current economic crisis?

This grand coalition does not bode well for the average German. One only needs look back at the last grand coalition formed in 2005. What should have been a compromise between Merkel’s centre-right Christian Democrat bloc and purportedly centre-left Social Democrats ended up an incontrovertible neoliberal program unfavorable to most cititzens. The best example was the two percent increase in the sales tax in the Christian Democrat bloc’s platform, the most contentious issue of the 2005 election. The Social Democrats castigated this increment, which would principally penalize wage earners, as the “Merkel Tax”. As the grand coalition was formalized, it was announced that the sales tax would not be increased by two percent, as sought by Merkel, but, astonishingly, three percent. Other changes initiated by the past grand coalition were an rise in the retirement age by two years, and a reduction of corporate and inheritance taxes, to name a few.

This volte face by the Social Democrats was something many voters and party faithful have never forgiven. In the 2009 elections, after four years of grand coalition, not only did the Social Democrats suffer their worst post-war election result, 23 percent, but the party had by then lost almost a fifth of its members. This was the second major haemorrhaging of leftists (the first during the the Social Democrats’ neoliberal policy under Gerhard Schroeder) the party had suffered within ten years. One does not have to look far for an explanation. The party had jettisoned its social credentials.

After its 2009 election disaster, the party tried to rebuild its leftist image. The predominant features of its latest election platform included raising taxes for the rich to finance much needed public investment sacrificed in the name of austerity and a minimum wage in a country where a quarter of employees work in the low pay sector. This helped to raise its results slightly, but most of its leftist voters appear to have abandoned the party, with its leftist election rhetoric and rightist policy, forever.

This does not seem to interest the party grandees in the least. They give the impression of being more concerned about their personal wealth than the welfare of their constituents. Since the era of Gerhard Schroeder one prominent Social Democrat politician after another has found a well paid job in companies that they had provided political favours for while in office. Many prominent Social Democrats of the Schroeder era, including the former chancellor himself, whose egregious venality is an embarrassment for the party, are glaringly absent at party conventions.

Peer Steinbrück, who was the Social Democratic chancellor candidate in last month’s election didn’t even wait to retire from active politics, but cashed in while still a member of the Bundestag. As Finance Minister in the last grand coalition he had generously bailed out German banks, letting the taxpayer foot the bill. Following the election debacle of 2009 he was reduced to being a simple member of parliament. But he was a seldom seen there, missing important debates and legislation votes, preferring instead to give highly remunerated talks, mostly for financial institutions, earning around €1.5 million ($2 million), until the election campaign terminated these appearances.

Thus it comes as no surprise that the first prominent Social Democrat to broach the topic of a grand coalition shortly after last month’s election, Johannes Kahr, stipulated only one condition: That his party receive as many minister portfolios as the triumphant party of Ms. Merkel. For Kahr and many other Social Democrats political issues are – well – not an issue. Even before the grand coalition has been finalized, new prominent posts are being created in the Bundestag and purportedly in the government to provide for the rapacity of the Social Democrats, this ostensibly includes an increase in the number of ministers.

On the other hand, coalition backroom dealing has hardly begun and the Social Democrats have already backed off from taxing the rich. Having limited its deficit by law, however, there is little room to manoeuvre for increased government spending for education and infrastructure, unless funds are taken from other programmes, which could translate into further cuts in social spending. The question of a minimum wage seems to be on the best way to being watered down. According to election promises this was supposed to be 8.50 Euros ($ 9.40), the Social Democrats however never said when this should be introduced into law and in what form. Merkel’s Christian Democrat bloc may well acquiesce to a transaction tax, another policy demand of the Social Democrats, but then let it be scuppered by the EU. After that there is not terribly much left of the Social Democrats’ platform

For Europe things do not look much better. There is little help to be expected from the Social Democrats, once a party promulgating European solidarity. Even in opposition the Social Democrats have unceasingly supported Ms. Merkel’s EU financial policy.

Of the Social Democrats’ “Ten essential points“ for negotiating with the centre-right Christian Democrat bloc, Europe landed at the end of the list, which says a good deal concerning priority: “We want to secure and increase growth and employment in Europe. This can only succeed when all EU nations, especially those within the Euro zone, couple a strategy for sustainable growth with sustainable financial policy.” Little compassion there. In fact, it sounds uncommonly similar to the current policy of austerity being pursued by Ms. Merkel. Here as well, the Social Democrats appear to backing away from their demand for the introduction of Eurobonds.

Ms. Merkel is however vigorously working towards an EU financial pact that would provide cash support for financially troubled nations, but at the cost of sacrificing their fiscal autonomy. That is why she needs the Social Democrats. A change of this dimension would not only probably necessitate a change in the Treaty of Lisbon, which is part of the constitutional basis of the European Union, but of the German constitution as well. This would be particularly difficult with regard to providing German taxpayers’ money for a fund to support what have been up to now portrayed as profligate and work shy Southern Europeans. With the Social Democrats Ms. Merkel would not only have enough votes in both houses of parliament to alter the German constitution, but would enjoy the moral support of Social Democrats of providing other Euro nations with a cash contribution via an EU investment fund.

Many EU nations are however tiring of austerity and increasing German hegemony. Thus the German government has prepared a Plan B, a pared down version. This would involve an intergovernmental agreement with the 17 nations in the Euro currency group. The purpose of this agreement, which would go a major step further than the existing “Euro Plus Pact”, is to institutionalize the regulation of the labour market, as well as the welfare, health, and the state retirement pension systems in these countries. This would impose the same conditions as already exist for Euro nations currently being bailed out – for everyone and all the time. It would also vitiate the necessity of removing democratically elected governments to push through austerity measures. As recompense a multi-billion Euro fund that would provide financial aid for investment, would be on offer. To enforce this new financial regimen, an official full-time head of the Euro currency group is apparently in the planning. This would take decision making power from the EU Parliament and give it to a newly created institution independent of the EU.

This alternative strategy would entail the implementation of an intergovernmental pact, similar to the European Stability Mechanism. Euro zone nations that opt out would maintain their fiscal and economic autonomy, but those who are in need of cash would have little alternative, but to yoke themselves to German dictates. There is the question of how those nations that sign up and cash in can later leave such a pact, especially due to a change of government with different solutions for the current financial crisis.

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11 comments

  1. Terry

    Sounds rather like what happened in the UK. Right-of-centre party plus nominally centrist (but more left-of-centre in terms of membership) party go into coalition and what results? More extreme policies than the right-wing party espoused in its manifesto. In no way is policy an “average” of the two manifestos. The mind boggles.

  2. Ignacio

    I’am afraid that the supposed intergovernment pact would just be the officialization of the current situation with just some more belt tightening for the periphery. It will become increasingly clear that voting in Spain or Greece is a formality without consequences in decision making. Like now, but clearer. This would almost certainly provoke a rupture within the conservatist party that currently agglutinates liberals, nationalists, tea-partiers and rigth wing extremists. I can envision a Le Pen like party arising in Spain as a consequence of these policies.

    1. BillC

      Add Italy to your list of EU nations where voting “is a formality without consequences.” The largest so-called center-left party, the Democratic Party, is as compliant with TPTB as their US namesake and the parties to their left are too small and fragmented to matter. I’m not sure all the center-left leaders have been bought/seduced, but at the very least, they lack the courage to admit, “In our enthusiasm for the European Project, we failed to see that the economic and fiscal fine print were written for the benefit of the global kleptocracy.” And in Italy, we even have Mussolini’s granddaughter to rally the electorate when the inevitable right-wing backlash really picks up steam. (The much-heralded 5-star movement is lost in internecine fights and looks to be a flash in the pan.)

      1. Banger

        Italy once had a real left in a powerful Communist Party that ran many local governments and almost shared power until dramatic events turned Italian politics upside-down. I knew some of these officials in the 70s and they were great guys who really cared about their city.

  3. Aussie F

    We’ve never solved the ‘German problem’ in Europe. The EU was supposed to domesticate aspirations in Berlin, but it hasn’t worked. Now we have a reunified Germany dominating Europe politically and economically.
    It’s not really even the fault of the Germans. NATO realpolitik has been a large part of it, and has allowed a resurgent Germany to rebuild it’s colonies in the east.
    So it’s Washington Uber Alles, with Germany as the loyal lieutenant, and the Benelux countries and ClubMed dragged along in the wake.

  4. kevinearick

    Blazing Saddles: Cartels & Free Trade Agreements

    The cartel cannot exist in an environment of free trade, and like everything else, must be grown from a seed, so it requires a favorable environment of free trade prohibition. As you can see with the latest American cartel, pot, State Police Power establishes the exploitation law of diminishing returns, decreasing quality and increasing price, carving a center to grow taxation by an increasing number of middlemen, exploiting ignorance.

    The Polish coal cartel likes to say that it can bury every human on the planet in its mine. That’s not quite true, but it’s a helleva lot closer to the truth than real estate scarcity, which is created by the irrational consumption of transportation infrastructure, which is only being increased by the leading edge of the corporate Internet. So much for escaping the consumption with virtual space.

    You don’t wait until weeds have overwhelmed your farm to pull them out by the root, unless you want to fight weeds year after year, until they strangle your crop and your entire enterprise becomes a sunk cost. We have once again reached that stage in the empire cycle when the cartels have completely captured the middle class, with nothing more than a perception of artificial real estate scarcity, created by international regulation of artificial borders, favoring capital (G) over labor (the rest).

    First, the cartel gains control over energy, and then food, and then everything else. Welcome to Saudi Arabia. How do you like the weather?

    Step away from the control device on the fuel line; it’s a conspiracy of stupid.

    Empire process begins with individuals seeking reward on no risk, no work, and then grows into civil marriage for the purpose, into local economies for the purpose, and ends in a TBTF, cradle-to-grave government economy, built to perpetuate the cartel model, which is what you are looking at.

    Despite massive real estate excess capacity, prohibited from use by cartel operation, the critters wake up every morning with the assumption of a quick buck on passive investment, ensuring artificial scarcity in favor of the cartels. And then chase RE inflation with stagnant wages ensured by trade agreements seeking the last fool, in planes, trains and automobiles designed for the purpose.

    Automating the efficiency of empire process , and building spy networks to ensure full participation in the keep-up-with-the-Jones feedback loop, simply reduces the amount of cheese required for the wheel powering the prison. The Gulag isn’t run by the warden; it’s run by prisoners competing for privileges relative to other prisoners. Ultimately, they are all prisoners relative to those beyond the wall.

    All a cartel can do is increase price and decrease quality, with artificially induced variability as noise, along the curve of diminishing returns, and it must have a population ponzi to that, because the lottery promise is the cheese. Toyota kicked GM’s A because it raise price and held quality, while GM, with the backing of the reserve currency, decreased quality as well.

    As you can now see, however, the system is self-limiting, because intelligence is ruled out over time, and it blows up when demographics decelerate. If no one is making pie, because everyone is competing to be chief, to avoid work, there is no pie. Likewise, global automation triggered a race to the limit of empire diminishing returns, with lots of cheap crap coming off the assembly line, paid for with so-debased entitlement income.

    What now holds the middle class together, and in prison, is all the material crap it collects as prizes for compliance, which becomes a sunk cost relative to those beyond the legacy material prison. The empire runs exactly backwards; the body, and its impulse response to expected stimulus, controls the mind, leaving the mind no option but to map smaller and smaller details in the box, which the university labels as economic activity and measures as GDP.

    When you net out all the misdirection, the Fed is debasing all currencies with real estate price inflation in an environment of wage stagflation, feeding every cartel on the planet in trade agreements made for the purpose. America is a fine scapegoat, but all the global embezzlers are following its lead, laundering their profits with the reserve currency and placing their losses on legacy government balance sheets.

    In one manner or another, the vast majority is participating, actively or passively. Intelligence, along with associated living standards, is declining from generation to generation. From the perspective of non-participating labor, it’s a distillation process. Pen as many trade agreements as you like, pitting the middle class against itself. Labor doesn’t build bridges for real estate; the planet, and the universe, is awash in real estate.

    If you place property before income before people, you get what you get, sunk cost real estate, and unless you are a worm, you can’t eat dirt. Ignoring the foundation, individual responsibility, simply grows the empire, into a vortex of words and make-work. If you do not discipline your self, you will be disciplined, by self destruction on a one-way road back to the churn pool. Labor doesn’t require a bankruptcy code.

    A parent’s job is to move heaven and earth. If you are not up to the task, you may want to get out of the way, before the empire blows up.

    Or, you may want to figure out how you are going to fix that elevator without replacement, which is all the empire mechanics can do, before global recognition of the corporate free cash flow problem. India outsourcing is not experiencing a currency crisis by accident. Americans may be new to this game, but the rest of the world has seen it all before, many times.

    Save Mendo; buy Oprah’s stuff! The Witches & Warlocks City Council thanks you.

    Have you seen that commercial with the maladroit kid playing GI Joe, as a video game? That is America, projected. Careful, what lies beneath the still water. Gravity is no accident, and the pyramid doesn’t quite work the way the occupiers assume. Germany makes the same ‘mistake’ every time.

    …bless those that persecute you…heap coals of fire…

  5. John Yard

    Can anyone name a Social Democratic party in Europe – or anywhere – that is not the shadow of its former self ? It appears that thay have taken the US Democratic road in becoming the party of technocratic upper middle class professional elites. Is this analysis off the road ? I do not read/write a European language so all my knowledge is third hand.

    1. Fiver

      Nothing at all wrong with your analysis, John. It turns out “ability” plus “education” plus “hard work” do not automatically confer virtue – the idea that “equal opportunity” was sufficient was one of the most successful lies of of all time.

  6. Fiver

    Proof positive that “centre-left” is meaningless – it’s either “left”, for sale, or the easy way out.

  7. Lars

    > This would give the coalition well over a two-thirds
    > majority in both houses of parliament.

    Fortunately, this is not true at all. It would give the coalition a two-thirds majority in the Bundestag, but the coalition would not even have an *absolute* majority in the Bundesrat. That’s because in the Bundesrat, which represents the German states, the seats are given to the gouvernments of the states, not to their state-level MPs.

    So let’s say in some state parliament, the CDU and the SPD each have 40% of the seats, the Greens have 15% and the FDP 5%. Then CDU and SPD would have 80% of the MPs in that state, but because the SPD would form a coalition with the Greens (together 55%), only they would be represented in the Bundesrat. The CDU and the FDP would get no seats in the Bundesrat (for this state).
    Additionally, every state in the Bundesrat can only vote yes, no or present with all of its votes, it’s not possible to split them. Therefore, the SPD-Green state gouvernment must abstain if the SPD supports a law and the Greens oppose it. (And an abstention counts as a no under Bundesrat rules.)
    So for this state, the 80% majority of CDU and SPD in the state parliament would translate to no single vote in the Bundesrat.
    If you look at the current allocation of seats (see http://de.wikipedia.org/wiki/Bundesrat_%28Deutschland%29), the “Grand coalition” has only 27 seats (majority: 35 seats, two-thirds-majority: 46 seats). They will get an additional 5 seats if CDU and SPD form a grand coalition in Hesse, but even then they’ll have only 32 seats and will be short of even an absolute majority.

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