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Germany's Crisis Is a Very Good Thing

Andreas Kluth

(Bloomberg Opinion) -- Norbert Walter-Borjans and Saskia Esken, the new leaders of Germany’s Social Democrats (SPD), may be about to do Germany and Europe a favor. That’s not thanks to any inherent qualities they possess; both are colorless and unimaginative left-wingers vaguely resembling Britain’s Jeremy Corbyn, though not quite as reckless. Rather it’s because they may want to take their party out of its coalition with Chancellor Angela Merkel’s center-right bloc, a possibility that has sparked a full-blown government crisis. Anything that shakes the country out of its torpor offers a ray of hope.

The current government of the European Union’s largest economy has been inexcusably mediocre, and is badly in need of change. Name almost any major challenge facing Europe today, and German flexibility and leadership is as needed as it is absent.

The euro area is at risk of stagnating, and Germany is the economy that could help the most, with a big fiscal stimulus. Instead it clings doggedly to its fetish for balanced budgets. The currency union is vulnerable to another euro crisis unless it is strengthened with a full banking union, including a common deposit insurance scheme for the region’s lenders. But Germany balks at anything substantive.

At a time of geopolitical turmoil, Europe must also rethink its military readiness and alliances. Yet Berlin keeps defying calls from its NATO allies to spend more on its army, which isn’t remotely prepared to help protect eastern Europe against Russia, if it ever came to that.

The government did try to come up with a plan to tackle climate change recently, which is more than most Western countries can say. But the package wending its way through the legislative system is laughably unambitious.

The Merkel administration’s domestic policy record is even worse. Germany’s last major economic reform took place under her predecessor, Gerhard Schroeder. In her 14 years in power she has attempted nothing on such a grand scale. A tax reform is long overdue, especially as other countries cut their corporate tax rates. Then there’s immigration law, which would benefit from a points-based approach like Canada’s to alleviate Germany’s shortage of skilled workers. But Merkel’s cabinets, three of which have included the SPD, have merely tinkered. A ballyhooed digital upgrade of Germany’s economy was all talk and no byte.

The best that can be said about the present coalition is that it survived the refugee crisis of 2015-16 and restored order subsequently. Yes, the parties checked off most of the projects they agreed on when they reluctantly renewed their governing partnership in early 2018. But that was an underwhelming list signed off by coalition partners who openly loathe each other.

The effect is that Germany and Merkel, who’s made herself a lame duck by declaring she won’t run for office again, have forfeited their leadership role. This has left a vacuum at the heart of Europe, which Fance’s president Emmanuel Macron is trying to fill. He has been asking the big questions about the EU’s future, expecting support, or at least replies, from Germany. The silence in Berlin has been deafening.

In frustration, Macron has started taking ever bigger risks; musing about new European military alliances, a new relationship with Russia, a new economic design for the euro area, and a halt to the enlargement of the EU. The Germans don’t know what to say to such adventurism. Suspecting a hidden neo-Gaullist agenda, with France seizing the reins in western Europe, they’ve reverted to acting as Macron’s spoilers.

Berlin hates political crisis. It comes out of a cultural fear of “instability” that dates to the chaotic Weimar Republic (or rather, what came after its failure). But these worries are overblown.

Consider the main scenarios. First, next weekend the SPD must anoint Walter-Borjans and Esken and decide what to do about the coalition. They will no doubt demand a new direction from Merkel, including a boost to the minimum wage and other leftist goodies. The conservatives (who are struggling in the polls) will have no choice but to stand firm and say no.

The SPD might then attempt to walk out of government. Merkel would in that case probably ask for a vote of confidence in parliament. In Germany, a chancellor can only be voted out if parliament simultaneously elects a new one. So either Merkel or a successor would have a good chance of staying in power as a minority government. That idea is anathema to Germans (Weimar, again), but neighboring Denmark and other countries prove minority government can work. Merkel or her successor would have to seek issue-by-issue support from the Greens or the pro-business Free Democrats. That would at least require open debate, which would be a boon to German democracy after years of parliamentary inertia.

If a minority government fails, Germany’s president, Frank-Walter Steinmeier, would call new elections. Yes, Europe has been having rather a lot of those lately. But in Germany — unlike Spain, for example — new elections would actually change the composition of parliament, because the Greens would replace the SPD as the second-largest party and obvious partner of choice for the conservatives. They’re thriving these days, and would push the government into bolder action. Macron would have somebody to talk to.

The coming weeks and months will make history in post-war Germany, which is not used to such turmoil. But once the dust settles, new constellations could revive political debate and policy-making. For the sake of Germany and Europe, that’s worth a try.

To contact the author of this story: Andreas Kluth at akluth1@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andreas Kluth is a member of Bloomberg's editorial board. He was previously editor in chief of Handelsblatt Global and a writer for the Economist.

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