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Transatlantic Take

The Last Hurrah

January 15, 2018
6 min read
Photo Credit: 360b / Shutterstock

BERLIN — Judging from their first joint planning paper, Germany’s prospective grand coalition wants to celebrate Christmas all over again and present gifts to everyone. The 28 page document, published last Friday, reads as if governing is one big giveaway, freebies for all.

True, this coalition is still not a done deal even if the party leaders have agreed on governing and legislative goals during their four day “exploratory session.” A Social Democratic party conference is set to bless the results and only if it does will party leaders be allowed to enter into formal coalition negotiations. First reactions from the party’s rank and file members sound as if there is trouble ahead for party leader Martin Schulz.

Still, the preliminary agreement is a good indicator of the mood in the country, and what politicians from the two mainstream parties seem to think needs attention and fixing. Clearly this is a country that is well off and feels that way too. Problems can be solved simply by spending more. Political fights are about who gets what. In the end, there will be a little for everyone. There will be extra money for education and science, for children and pensioners, for rent-controlled housing and rural infrastructure, for development aid and border control —  the list could go on. 45 billion euros in additional spending is foreseen. Add another seven billion that will come out of the social security pot rather than general tax revenue.

Germany is enjoying its second economic miracle. Eight years of growth in a row, a solid 2.2 percent in 2017 alone. Inflation is low, wages are growing. Unemployment is so low that parts of the country can rightly claim to have full employment. Every month, the labor office is announcing new record employment numbers. In this situation, finance minister must be a wonderful job. The office holder can announce record tax income, a balanced budget, as well as new spending programs every year — and especially after an election.

Politicians of both parties claim their spending spree will increase what they call “social cohesion.”  However, the preliminary deal has more of a left-liberal feel to it. It addresses many of the concerns of Social Democrats and satisfies their desire for social justice through redistribution.

In light of the available surplus, the Christian Democrats even snuck in a tax cut. It is tiny, but it is a cut. For the conservatives, this can count as a success since the Social Democrats had proposed a tax increase on individuals with higher incomes. It would have been a historic novelty to respond to surpluses with tax increases. But it would have satisfied the desire of a left wing base in the Social Democratic party.

Given this fiscal wonderland, one might ask: And what about defense spending? Yes, upon careful reading an increase can be detected. There will be two billion euros of new funds. But wait, these new funds will be spend over four years. And they will not only serve to increase the defense budget, but will be dedicated to development aid and preventive security as well. In fact, the agreement repeats the goal of reaching 0.7 percent of gross domestic product for development aid, but it does not mention NATO’s two percent defense spending goal. Therefore, the defense budget increases in this preliminary agreement are more rhetorical than real.

And the rhetorical piece is a feast for connoisseurs. The relevant paragraph reads like this: “We will supply our soldiers with the best equipment and training. We will increase spending for development and humanitarian aid and civil crisis prevention as well.” Note the term “as well.” Negotiators were at pains to explain that this is the magic word. It is supposed to indicate that defense spending will be increased. Except that this fact is carefully hidden in order to placate the Social Democratic base which wants peace, not war and social justice, not new toys for soldiers.

In fairness, the defense budget will definitely increase, but less because of this preliminary coalition agreement, and more because of earlier decisions to spend an extra two billion euros per year over the next few years. Yet, given the solid growth rate and inflation at 1.8 percent, it is now more doubtful than ever that Germany is on course to reach NATO’s two percent spending goal any time soon. Defense spending is certainly not one of the priorities of a coalition blueprint that is otherwise all about spending.

So, is it fair to say that there are now priorities in this deal? No, it is not. There are two policy areas in which negotiators have pushed the envelope and achieved something that might make the whole enterprise worth the attempt.

One is migration. The deal represents a solid compromise so solid that it might serve to satisfy and pacify a society that has been aggravated by the refugee crisis and the ideological debates around it. The agreement upholds the right to claim refugee status in the country, but it limits the number of newcomers to 180,000 to 220,000 per year. Defining such a corridor is new; conservatives had called for it for a long time, but had met fierce resistance from the political left. Now they got a version of what they wanted. On the other hand, the Social Democrats will get what they had long called for: a law regulating immigration and allowing for skilled labor to enter the country on a legal basis. Throw in commitments for more European scale border security and development aid in countries of origin of refugees and you have a workable compromise that meets the challenge of our times.

The second remarkable achievement of this coalition blueprint is its focus on European reform. For the first time in the history of the republic, a coalition document starts with “Europe.” It signals to President Macron in France that we are ready. An answer to your call for reform is coming.

In fact, “Europe” is the main difference to the failed attempt to form a coalition earlier. The so called “Jamaica” parties had managed to negotiate a couple of pages on reform of the European Union and the Eurozone that were devoid any ambition.

The prospective grand coalition makes European reform the essential element of its very existence. And it does indeed indicate that Germany will be willing to abandon some long-held preferences in order to make progress with its partners on the continent: on budgets, on Eurozone management and institutions, and on a multispeed Europe. The pages on Europe are what Germany’s neighbors had been waiting for. However, if this coalition fails to materialize, and it still could, we will know what the prize of failure is.

Clearly, a political cycle is coming to an end with this agreement. A generation of politicians is gearing up for their last hurrah. With the exception of the elements on migration and Europe, the preliminary deal for a new coalition signals nothing but continuity. In today’s heated political environment, some will find this to be a relief others will find it is just not enough to respond to the challenges of the times.