Don’t look, I’m changing
It’s all change in Germany this week. Angela Merkel’s reign as Chancellor ended after 16 years at the helm. In came Olaf Scholz with a dry tweet proclaiming “I said ‘yes’”, at the head of a so-called Traffic Light coalition between social democrats, liberals and greens. Julie Mochamps spoke to our Senior Advisor and resident reader of the German runes, Karl Falkenberg, about what he expects.
Julie: First of all, what kind of Chancellor do you think Scholz will make?
Karl: Scholz showed himself to be very patient and very persistent in pushing for his ideas – his ability to build this coalition and his working with the US on a minimum tax for companies speaks to that. A promising start for his leadership. Nonetheless, he will be facing the challenge of getting Germany over the pandemic in the next three to five months – a crucial test for this new government.
Julie: So will this coalition represent a radical change of direction for Germany?
Karl: German politics has a long tradition of continuity. But this is a new attempt at marrying the the left and right. I was surprised that the Greens and the Social Democrats managed to reach an agreement with the Liberals (Free Democratic Party), and this has come at the expense of acquiescing to a number of the FDP’s policy positions, which will ensure there is no big departure from the previous government in a lot of areas.
One area where there will be movements is on climate change policy, notably in terms of investment. Strict budget controls will remain but the compromise reached means this coalition will aim to finance its climate policies by bring in outside private capital. A case in point is the introduction of more electric vehicles, where private finance will be sought to build out the charging network.
Wind and solar energy is another area requiring huge investment, and here again, the new German government will be looking for mixed public-private financing, opening upopportunities for private companies to secure concessions, invest in wind parks, look into the necessary grids and their energy storage capacity.
Another notable change is on social policy. The minimum wage in Germany will be significantly upped, to €12 per hour, an almost 30% increase. This coalition also has a distinctly socially liberal agenda, with policies to allow different types of marriage, and simpler adoption for different types of couples.
Julie: And what do you think of the new coalition’s stance on foreign policy?
Karl: The Greens – who are in charge of the Foreign Ministry – are the most vocal on bringing democracy and human rights into international relations, but the extent to which and how this be reflected in relations with Russia, China and other countries remain to be seen. Chancellor Scholz’s initial comments when it comes to Nord Stream 2, for example, demonstrate that this issue is not yet fully fleshed out.
Germany’s international military presence is also likely to be re-evaluated. With troops now withdrawn from Afghanistan, the new Minister of Defence has said the will look again at the presence of German troops abroad – more particularly in Mali and Niger.
Julie: And relations with Washington?
Karl: This government will obviously continue to look to rebuild EU-US and German-US links. I expect they will be more lenient towards political mishaps from Washington – such as theirdisappointing response to the EU’s decision not to increase tariffs in the steel tariff dispute. The main driver of this approach being the desire to avoid another Trump era of transatlantic relations.
On the other hand, Germany will not enthusiastically follow the US in its conflict stance vis-a-vis China and Russia. It will want to avoid further antagonising and instead privilege dialogue and progressive change. In this sense, I expect Scholz to be like Merkel, looking topursue cooperation in some areas while recognising and discussing differences. The reality is that the whole political class do not see sanctions as an effective tool to bring about internal change in China and Russia.
When it comes to climate change, we can see significant differences between Germany’s approach and that of the US. This new government will want Germany to go faster.
Julie: Let’s come closer to home, what do you think the implications of the coalition treaty for the EU are?
Karl: All three parties have made very strong pro-European statements and want to strengthen the EU. In fact, the finance minister is in favour of more fiscal coordination within the EU – anissue discussed at length in the European Parliament as relative differences in fiscal systems often lead to tax evasion. Budget requirements make this issue particularly relevant for the coalition’s policy agenda. Hence, it is likely there will be a German push inside the EU to look at fiscal issues, especially in light of Scholz’s recent proposal for a minimum tax on companies in the OECD.
However, when it comes to EU initiatives such as sustainable finance, there is likely to be conflict as the Greens and a majority of the Social Democrats remain very much against nuclear energy being labelled as green. Germany is on a very different path on renewable energy than France, and bridging their different approaches is a sine qua non to moving the EU’s green agenda forward. When it comes to the carbon border adjustment mechanism (CBAM) proposed by the EU, the new government is likely to support the initiative as they would see it as helpful to force a more rapid transition inside the EU market.
Julie: So will Germany now become a genuine global leader on climate?
Karl: The Greens – notably Habeck and Baerbock, the economy and foreign ministers respectively – will position themselves in this way, thus making the German voice the leader on climate issues. And with its large programme aiming to increase renewable energy, Germany will effectively become a climate leader. The big question is how they will achieve this. Will it be as a model for the rest of the world, or will Germany try to do it behind CBAM and other border measures and create a strong link with trade policy? It is important to consider that, with Germany remaining an export powerhouse, it is unlikely they will push for harsh border measures, as CBAM will certainly create major reactions from Germany’s major export markets.
Julie: That’s interesting. Finally, how do you see the three parties in the coalition getting on? Can the government last?
Karl: The three parties have been surprisingly disciplined during the negotiation period of the treaty and have been working together in total confidence. These are positive signs for the future. On the other hand, there are still many fundamental differences between them, which could lead to tensions in the implementation of the coalition agreement.
