Germany’s crisis of complacency

Chancellor Angela Merkel (CDU) speaks at a press conference in Berlin on September 19, 2016. Photo: Michael Kappeler/dpa

Calm surface of German election masks lurking dangers, writes Helmut K. Anheier for Project Syndicate.

What a difference a decade makes. Ten years ago, Germany was cast as “the sick man of Europe,” owing to its apparent unwillingness to reform. The country suffered from high unemployment, declining competitiveness, a failing education system, an aging and shrinking population, and public debt that exceeded the limits set by the European Union’s Stability and Growth Pact.

But that was then. Today, Germany is regarded as a bastion of political stability and an island of widely shared prosperity in Europe and the world. This Sunday, Germans will elect a new government, and will most likely give Chancellor Angela Merkel a fourth term. She will then be on track to surpass her mentor, the late Helmut Kohl, as Germany’s second-longest-serving chancellor, after Otto von Bismarck. Germans can thus expect continued political stability in Berlin, and in most of their country’s 16 Länder (federal states).

Political stability, no surprise, follows economic success. Germany’s exports and imports are booming, wages are rising, unions are content and cooperative, and the economy is near full employment. The 2008 global financial crisis is long forgotten. And an influx of almost a million migrants and refugees in recent years has been accommodated, while public budgets remain in the black.

Looking ahead, few clouds seem to darken Germany’s horizon. Notwithstanding the squalid Volkswagen emissions scandal, endless delays for infrastructure projects, and Air Berlin’s recent bankruptcy, there has been little to dampen Germans’ collective spirits. By contrast, their fellow Europeans are consumed with angst. Britons are wringing their hands about Brexit. The French are confronting the realities of President Emmanuel Macron’s overhaul of the country’s labour code. And, as has long been the case, Italy is worried about its banks, and Spain is worried about Catalonia’s bid for independence.

In fact, things appear to be going so well for Germany that its federal election campaign has been a rather dull affair. The recent televised debate between Merkel and her main rival, Martin Schulz of the Social Democratic Party (SPD), was a charming but somnambulant display of civility and consensus. Talk-show hosts, struggling to fill the airtime allotted for commentary and analysis, had to play up every slight hint of disagreement just to keep audiences from tuning out from the debate altogether.

Germany’s hidden troubles

But the calm surface of German public life masks lurking dangers. Germans are hardly living in a Westphalian “best of all possible worlds,” as in Voltaire’s Candide. They have no illusions that Brexit will not bring headaches to the EU, or that Macron’s agenda will not have far-reaching implications for all of Europe.

Moreover, Germany has plenty of problems that it needs to fix at home. Many controversial issues have simply been avoided, and important attempts at reform have gone unrealised. For example, Germany still has not reformed its impossibly complex and unjust tax system. Its Energiewende (transition to a low-carbon economy) remains unfinished, and its public-private partnerships consistently underperform. Germany also needs to address its underinvestment in digital infrastructure, stalled financial reforms, underfunded pensions, and muddled state-federal relations.

In fact, no major reform has been successfully implemented since Chancellor Gerhard Schröder’s “Hartz” labor-market reforms in the early 2000s. Worse still, since Schröder presented his Agenda 2010 in 2003, no equally ambitious reforms have even been proposed, much less attempted.

In contrast to Schröder’s tenure, Merkel’s long chancellorship has been characterised by modest policy initiatives and incrementalism. That is not surprising, given that Merkel – affectionately nicknamed “Mutti” (mum) – has had to devote considerable attention to managing crises, most of which originated beyond Germany’s borders. And despite various market, currency, refugee, and even nuclear disasters, Germany has managed to pull through them all.

Germany has weathered these storms largely because of measures that were put in place by prior governments, and because Merkel and her coalition partners used those tools effectively. As a result, Germany was the first to bounce back from the 2007 financial crisis and subsequent euro crisis, and the first to take in large numbers of refugees.

But there is no forward-looking agenda or grand ambition behind these successes. Merkel’s approach to governing is to change as little as possible; and if changes are absolutely necessary, she makes them with the utmost caution. Indeed, under Merkel, caution has been the defining principle of German politics generally, and that is unlikely to change if – as seems likely – she secures another term in office.

The Teflon Chancellor

In the 1980s, the American press deemed Ronald Reagan the “Teflon” president. Today, Germans seem to have adopted that title for themselves and their country, and most certainly for their chancellor. Crises may hurtle in Germany’s direction, but they never stick. For Germany, everything is always someone else’s problem – or at least someone else’s fault.

Starting with the eurozone, all would be well, according to the prevailing German mindset, if not for Greece and Italy. Breakdowns in corporate governance can be reduced to a few rogue executives at Volkswagen who decided to comply with pollution tests by systematically cheating on them, or to tax-skirting American companies such as Amazon and Google. The world would be well on its way to addressing the existential threat of climate change, except that US President Donald Trump has decided to renounce the Paris climate agreement. And Germany’s ethnic and religious minorities would be far better off if Islamic extremists were not carrying out attacks in the West, and if Turkish President Recep Tayyip Erdoğan were not fomenting resentment among Germany’s Turkish population.

Given this style of thinking, it should not come as a surprise that Germany’s government is Teflon-coated as well. When, for example, other EU member states complain that Germany makes unilateral decisions affecting the whole bloc – the country’s leaders simply let the criticism slide off. This was certainly the case during the financial crisis, when Merkel announced a guarantee on euro-denominated deposits held by German banks. Her decisions to shut down the domestic nuclear-energy industry and to open Germany’s borders to refugees were similarly unilateral, and were taken at little apparent cost to her political standing in Europe.

The history of the past few years shows that Germans have become masters of self-protection. The German political establishment shuns any domestic problem that might disturb the country’s collective amnesia; and it simply ignores signals of discontent or resentment from abroad, and especially from fellow EU member states. And Merkel’s cautious leadership style is well suited to its environment. The chancellor and the country are essentially in cahoots: they prefer not to take action until pressed to do so.

Establishment Rules

Will Germany’s political centre hold in the election on September 24? Almost certainly, as will its governance modus operandi. Merkel’s Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), will return as the Bundestag’s strongest bloc, with the SPD a distant second. Between them, Merkel’s alliance and the SPD will win almost two-thirds of the Bundestag’s seats. Even among the smaller parties, The Greens and the Free Democratic Party will be eager to join a Merkel-led governing coalition. And The Left (Die Linke) has been sufficiently “domesticated” that it will not cause too much of a parliamentary stir. That leaves only the far-right Alternative for Germany (AfD) standing decidedly outside the political mainstream.

The question, then, is not whether the centre will hold, but what will happen at the political margins. Even if the AfD makes it into the Bundestag with 15% of the votes, it will be an isolated, essentially radioactive opposition. AfD representatives will certainly make a lot of noise; but they won’t change Germany’s tradition of political civility or the government’s cautious leadership style. Germany’s centre-left and centre-right parties have much in common with each other, and almost nothing in common with the right-wing fringe. And if the AfD brings its radical policy platform to the Bundestag, it will likely solidify the centrist consensus even further.

But while a broad political consensus may bode well for collegiality, it could also leave Germany unprepared for many of the challenges ahead, particularly given that the mainstream parties have proved incapable of offering anything other than more of the same. Consider the CDU, whose current election platform leaves the tax, pension, and health-care systems almost untouched, and proposes only incremental changes to family and education policies. For example, it would increase the current monthly childcare allowance by just €25 ($30) per child. And despite Merkel’s reputation among her supporters as a climate-policy pioneer, her party is offering no new proposals in this area. Instead, it is sticking with the current government’s watered-down, heavily criticised Climate Action Plan 2050.

Similarly, the SPD is offering no new overarching reforms, even though its programme is almost twice as long as the CDU’s. It has a plan to create new individual investment budgets for education, and to replace the current fragmented health-insurance system with a new scheme for all citizens, but not much else. And the potential junior coalition partners, despite having supposedly been toughened up by years in opposition, have little to add to their traditional party platforms. If anything, their defining issues and proposals – not least The Greens’ climate-policy goals – have already been absorbed into the centrist consensus.

The costs of consensus

One can only wonder what world Germany’s political class think they are living in. The mainstream parties’ platforms all indicate a willingness to sit on their laurels and enjoy the fruits of past labour, while putting nothing in place for the future. This is ironic, given that Germany regularly chastises other countries to reform, singling out Italy for its unruly public finances, for example, or Ireland for its wayward tax system. At home, meanwhile, the publicly owned state lenders, the Landesbanken, are still a drain on the economy ten years after the financial crisis; and the government is still dishing out billions in tax subsidies to German corporations.

Similarly, Germany can be expected to maintain its timid and often self-serving posture vis-à-vis the EU and the eurozone. Macron may soon discover that his purported ally in Berlin will not support him in any domestic or EU-wide reform effort that implies changes for Germany.

But Germany can avoid sorely needed reforms for only so long. Eventually, the Teflon will wear off, criticism will begin to stick, and the critics will multiply. The threat that continuity poses to the political centre this year may well turn out to be nothing compared to that in the 2021 election. Whether or not German leaders want to admit it, their country is at a crossroads. If they stay the current course, they will miss opportunities to ensure long-term prosperity and stability. Even worse, a domestic stalemate could take hold, as happened in the last years of Kohl’s long chancellorship.

And yet it is not too late to change direction. Germany’s leaders could still take a proactive approach to long-neglected domestic issues, such as education, taxation, infrastructure, social inequality, and pension reform. And they could finally start to anticipate future issues, by doing more to prepare Germany for the digital age.

With regard to the EU, German leaders could push for greater subsidiarity, accountability, and transparency. And they could start to cooperate more in reforming the eurozone, the Common Agricultural Policy, external border controls, and the current security framework.

Taking this new approach would mean actively removing the Teflon, rather than waiting for it to chip away. Germany would have to confront its critics head on. At the national level, the government will have to address the concerns of those who have already realised that the country’s decade-long economic and political honeymoon is ending. Internationally, it will just have to get used to being called a bully by thin-skinned neighbours and allies.

It is always easier to stay the course than to change it. But Germany’s leaders should realise that taking the easy way out is no longer in their – or their country’s – best interest.

This article was originally published by Project Syndicate on 22 September, 2017.

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