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Germany’s hard slog to form a government

After negotiations over five days and one long night, the three party leaders of Germany’s Christian Democrats (CDU), their Bavarian sister party the Christian Socialists (CSU) and the Social Democrats (SPD) gave a long awaited press conference on Friday morning, when they were finally able announce a tentative common agenda for engaging in actual coalition negotiations.
This happened against the backdrop of failed coalition negotiations between the CDU, the Greens and the Liberal Democrats (LDP) in late November.  Much was at stake. It does not look good for Germany’s international reputation that the fourth-largest economy in the world has been unable to form a government in over four months. Such a stalemate may be typical of Italy or Belgium, but not of Europe’s economic powerhouse. Chancellor Angela Merkel’s domestic and international standing is now also much weakened, and it has become clear that this will probably be the last legislature with her as Chancellor. The SPD’s Martin Schulz was also fighting for survival. He has had to execute a 180-degree turnaround since September, when he boldly announced that neither he nor his party were available to serve in a government led by Merkel. However, the constitution, aided by President Frank Walter Steinmeier, ensured that political leaders stood up to be counted — hence Schulz’s U-turn. 
The three exhausted party leaders hailed the agreement as give and take (Merkel), outstanding (Schulz) and a good starting point (Horst Seehofer of the CSU). All three will now need the go-ahead from their respective parties to sit down and iron out a coalition agreement. It will be plain sailing for the two conservative sister parties, but a lot tougher for the SPD. Their base needs to give approval at a conference on Jan. 21, and that base was less than enchanted by the fact that the party achieved a share of only slightly over 20 percent in September, which is pretty much half of where they were in 1998. They felt that voters left them high and dry because many of the SPD’s policies became reality during the last coalition government but Merkel’s CDU took all the credit.
Last Friday’s agreement was indeed a give and take, as the chancellor said.

The three main parties have finally ended a stalemate typical of Italy or Belgium, not Europe’s economic powerhouse. 

Cornelia Meyer

The CDU/CSU prevailed on a yearly upper limit for refugees of between 180,000 and 220,000. The solidarity tax for the former Eastern states will be revised downward, but it will not be abolished. The SPD did not obtain a tax increase for high earners, but managed to have the floor for pension payments raised. They managed to prevent further erosion of Germany’s climate-change goals. The new benchmark is a 40 percent reduction on the 1990 levels of CO2 emissions by 2030, and not by 2040 as demanded by the business-friendly right.
The big winner is Europe, which is understandable given that Schulz used to head the European Parliament and that Germany needs to fill the void created by Brexit. Germany will increase its contributions to the European budget. It wants to spearhead economic reforms in the euro zone and work on equalizing the social discrepancies between the various EU member states. This pretty much reflects the agenda of French President Emmanuel Macron, who was pleased with what the three German parties had come up with.
If all goes well, Merkel wants to have a government in place by Easter, at the beginning of April — six months after the elections, which is most unusual for Germany.
We should be permitted to ask ourselves why it has been such a hard slog. The Germans have not had it so good in a very long time: GDP growth stood at 2.2 percent last year and is set to be higher in 2018. Unemployment is at historically low levels. Yet one can feel the angst when listening in to the talk shows on German television, reading the press or simply talking to people. Germans fear the impact of China’s rising economic importance, the vagaries of global markets and technological advances. They are also faced with a rapidly ageing population, whose pension benefits will be a future drag on economic performance. Lastly, the huge influx of refugees in 2015 has upset the applecart and helped the populists on both the right and the far left to flourish.  The new government, whatever form it takes, will need to tackle these issues and deal with anxieties among the populace. At the same time, the political parties need to prepare for new leadership as the Merkels, Seehofers and Schulzs of the nation are nearing their retirement.
• Cornelia Meyer is a business consultant, macro-economist and energy expert.
Twitter: @MeyerResources