Dear NC readers: please give a rousing welcome to Mathew Rose, who will be writing original posts here from time to time. Based in Berlin, Mathew is an investigative journalist who focuses on the nexus of politics, finance, and business in Germany, with several acclaimed books under his belt. He’s recognized for his thoroughness and tenacity (for instance, see this profile in Der Spiegel, or the Google Translate rendering). We’re very excited to have him writing here and hope you are as well.
By Mathew D. Rose, a free lance journalist in Berlin
The German word for election, Wahlen, comes from the word “choice”, and in this general election there wasn’t really one. The parties avoided contentious issues, which was not terribly difficult since there were few. With the exception of the leftist “Links” party the other principal parties are solidly centre-right. The newly formed Alternative für Deutschland, whose predominant issue was jettisoning the Euro and returning to the Deutsch Mark, was on this one point the anomaly among its peers.
The clear winners were the Christian Democrats (CDU) and their Bavarian sister party CSU. They registered their best showing in two decades, reaching 41.5% of cast votes and were close to an absolute majority in the Bundestag, the lower house of parliament. This was at the cost of its coalition partner, the Liberals, who for the first time in the history of post-war Germany did not manage the five percent hurdle required for entering the Bundestag.
This was a factor in the biggest surprise of the election: Together with the approximately thirty percent of voters who did not bother to go to the ballot box, another fifteen marked their ballot papers for parties that failed to pass the five percent hurdle. That means that just over half of the voters supported the parties in the next Bundestag. In other words not even one in four of the electorate chose Mrs. Merkel and her party. That might not be sensational for the United States, but it is in post-war Germany. This fact vitiates Mrs. Merkel’s “resounding victory” substantially.
The other surprise was how the issue of the Eurozone’s financial crisis was excluded from the election by the CDU/CDU, Social Democrats, Greens and probably more crucial, the media.
This omission says a lot about the current state of German politics. There is hardly a compassionate voice here in politics, nor in the media concerning the effects of this crisis – at least not in mainstream media. No one talks about the millions of young people, pensioners and so many others in Greece, Ireland, Portugal, Spain, Italy and Cyprus whose lives are being ruined by the current crisis or face emigration.
The Effect of the Election upon European Policy
The German elections will hardly alter Germany’s European policy. The Social Democrats and Greens have supported the policy of Merkel and her finance Minister Wolfgang Schäuble throughout. Most Germans are exceptionally pleased with their government’s handling of the Euro-Crisis as reflected in the voter support of Merkel. For the Germans the current calamity is the product of corrupt and profligate Southern European governments (with Ireland thrown in) and their equally spendthrift populations. That these countries, with the exception of Greece, have been victims of a rapacious and reckless banking sector, in which German banks played a prominent role, is not part of the German discourse.
Interestingly, the term “austerity” is almost unknown in Germany, in place of which budget-discipline (Haushaltsdisziplin) is used. That the populations of the peripheral EU countries are in the midst of an economic downturn comparable to the Great Depression receives little or no solidarity from the Germans, who are more concerned about holiday bargains made possible by the economic downturn in sunny Greece, Italy, Spain, Portugal and Cyprus or purchasing property there on the cheap. The human cost and suffering is seen by Germans as a necessary purgatory to reach the state of financial grace, which Germany has achieved. Nor have the Germans had any qualms about removing democratically elected governments in Greece and Italy, in which it played a decisive roll. In the eyes of the Germans their newly won hegemony over the EU, due to their financial predominance in the EU – Germany is financing a quarter of the Euro rescue – will insure a better Europe.
Germany: Winner in the Euro-Crisis
The Euro-Crisis has been exceptionally generous to Germany. It has reduced the nation’s borrowing costs as a result of record low interest rates on government bonds. The savings are estimated at approximately forty billion Euros (54 Billion Dollars) since the beginning of the crisis. The depressed value of the Euro has also driven Germany’s vital exports and kept it competitive within the EU, which would not have been the case should other countries been able to devalue their independent currencies.
Furthermore, thanks to its political and financial clout, Germany was able to extricate its banks from most risks of the European banking crisis, leaving the peripheral EU nations, who then had to foot the bill, with burgeoning sovereign debts.
The German economy itself quickly recovered from the economic crisis. In 2010 not only did the economy grow robustly, but wages increased for the first time in years and unemployment fell. As tax revenues increased, austerity was never an issue in Germany, as long as the government was not spendthrift and observed “budget-discipline”. To check this possibility the federal and state government deficits were curbed by law in 2011, with the legislation of a debt limit.
However, this recovery has profited only a limited group. Even if the term is not used, austerity has been an integral part of the German economy since the Social-Democrat/Green coalition of 1998. A quarter of German employees work in the low-pay sector – the second highest rate in the EU. Since there is no minimum wage in Germany, almost 1.5 million employees do not earn the equivalent of unemployment benefits. Their wages have to be supplemented by the government. Public sector investment in education and infrastructure has been curtailed for years.
The austerity prescribed for other EU member states, on the other hand, does not seem to be helping them. Behind recent minor positive data often lies a contradictory truth. The decreasing unemployment in nations like Greece, Spain or Ireland has more to do with an exodus of workers seeking jobs in other countries than with improvements in the domestic labour market. Ireland’s return to growth of 0.4% in the second quarter, includes a contraction of 0.4% in the gross national product, once you remove the positive impact of large multinationals and foreign banks.
Germany’s economic policy has not helped Europe. The Germans are obsessed with being what they call “Export World Champion”. For years, as exports and productivity grew in Germany, wages stagnated, giving the Germans a trade advantage over other EU nations. Those EU member states who converted productivity into higher wages to avoid competition imbalances within the EU, such as France, are now being punished. Germany, which for centuries has been so preoccupied with the dialectic, has not given much thought to the consequences when one nation exports prodigiously, neglecting its domestic market.
Germany’s Next Step
Mrs. Merkel and her finance minister Schäuble, can now consider their next move for Europe’s “New Order”. This will probably be the ability to directly intervene in the state finances and economies of other EU nations without the inconvenience of removing governments. That goal could be achieved through a change in the EU constitution, empowering it as overseer. Of course all nations would have an equal say within the political union, but there can be no doubt that EU paymaster and economic powerhouse Germany would be more equal. The German government will of course have to provide some sort of incentive to convince other EU nations to sacrifice their financial sovereignty, but this would probably take the form of money to reduce deficits, instead of consent to Eurobonds, insuring Germany’s firewall against financial responsibility for a “United Europe”.
Such a step would postulate a change in the German constitution as well, demanding a two-thirds majority in the Bundestag. This could only be achieved in conjunction with the Social-Democrats, who also control the upper house of parliament, the Bundesrat.
The Social-Democrats would have no aversion to such a policy as such, but they have a generation problem. The old guard, such as Merkel’s challenger Peer Steinbrück, of whom many became millionaires thanks to the last grand coalition, would like nothing better than a last go at the financial perquisites of government. The succeeding generation of Social-Democratic politicians, which shall be contesting the next general election in four years, remember the consequences of the last grand coalition: a loss of one third of their voters, who did not return in this general election.
Wrangling and bargaining has already commenced, but whatever its outcome, it shall offer little relief to a struggling European Union.