The German center may not hold

by Uwe Nerlich Since the late 1940s, Germany has been […]

by Uwe Nerlich

Since the late 1940s, Germany has been both a source of uncertainty in Europe and the cornerstone of efforts to build stability and prosperity on the continent. In 2016 this basic ambiguity continues, but with a more positive tilt than is apparent from the headlines.

Economic growth is poised to accelerate as sound public finances give the government latitude to continue structural reforms.

* Despite the immigrant influx, the jobless rate has fallen to a 25-year low (5.8 percent) and the workforce is forecast to reach a record 44.3 million in 2017.

* People’s satisfaction with their lives is rising, at least in western Germany.

* Demographic decline has begun to slow, although a rising birth rate (the highest in 33 years) and more immigration have not yet reversed the trend.

* Political extremism has not destabilized the party system. The Left Party is relatively stable at 10 percent support, and its entrance into two state governments will tend to strengthen its realist wing. The right-wing Alternative for Germany (AfD) has begun to slip below 13 percent in the polls, with one major survey showing 9 percent.

* While Germany is still a magnet for refugees, the influx has slowed even without an enhanced program to redistribute them among other European Union members. But this improvement hinges on a politically fragile deal with Turkey, which awaits promised financial aid from the EU.

Most indicators suggest a stable Germany, even if that stability depends both on domestic reforms and on even more sweeping institutional changes in the EU.

Shifting coalitions

If there is a widespread feeling of uncertainty in Germany, it stems less from economic and structural deficiencies than from political trends. The problem is not the rise of extremist parties per se, but an erosion in the cohesion and steadiness of traditional parties.

This can be seen in voter preferences for governing coalitions. According to a recent Infratest poll, 48 percent of German voters favor a continuation of the grand coalition between the Christian Democrats (CDU-CSU) and the Social Democrats (SPD). That compares with 36 percent preferring a CDU-CSU/Green coalition, 33 percent favoring an SPD/Greens/The Left government, and 32 percent backing a CDU-CSU/Green/FDP alliance.

While these all suggest mainstream politics as usual, what is striking is the need to assemble broad coalitions and the narrow margins for governing majorities. Both suggest political volatility. Neither the CDU-CSU nor the SPD favor a long-term grand coalition in the Austrian style. This means that both will scramble to find smaller coalition partners, fostering internal conflicts that tend to split leaderships and electorates.

Germany holds its next federal elections in the autumn of 2017. By that time, major political changes may have taken place in Europe. Elections and referendums will have been held in France, Italy, the Netherlands and Switzerland, among others. The United Kingdom will be well on its way to negotiating Brexit. Throughout Europe, there will be agonizing reappraisals of the EU’s future. Tentative efforts at consolidation may emphasize defense – the least promising area for enhancing cohesion. Meanwhile, centrifugal tendencies will grow as member states succumb to domestic pressures.

Strategic vacuum

The EU has become a polarizing political issue in most European countries. Opposition movements seeking some sort of systemic change regard the EU as an extension of despised domestic elites. This strengthens popular revulsion against the authorities in Brussels and weakens the latter’s ability to bolster establishment parties. Status-quo politicians have difficulty articulating any vision of the future, while populists seek to tear up Europe’s existing fabric in the name of not-so-silent minorities.

The EU is functionally indispensable but incapable of providing political leadership. Instead, the search for national remedies dominates. One result is a diminished ability to think and act strategically. The push for a more authoritarian style of rule at one end of the political spectrum, and a desire to weaken centralized decision-making (“reducing democratic deficits”) on the other, both undermine Europe’s cohesion. While national governments are increasingly formed by coalitions of colorless mainstream parties, their power to shape Europe has been reduced to what Francis Fukuyama has labeled as “vetocracy.” The recent difficulties in overcoming Belgian Walloons’ opposition to the CETA trade pact is a symptom of this weakened political capacity.

Yet without a viable center for collective action, the EU will be unable to master the problems that are tearing it apart. To name a few, these include:

Stagnation on Europe’s southern rim, where decades of poor governance have spurred desperate calls for growth, jobs and balanced budgets.
Reversion to authoritarian and self-isolating politics among some of the EU’s eastern members, who until recently had displayed impressive stability.
Retaining northern Europe’s open political culture amid a revival of national rivalries in the rest of Europe, where a “return of history” is increasingly evident.

French alliance

Since the end of the Cold War, Europe has become ever more complex. Its divergent societies require more adaptation even as the common structure has weakened. This has made crisis the EU’s normal state and process management its default mode.

Ever since Charles De Gaulle’s vision of a Franco-German alliance driving European development, Germany has used this “embedded bilateral” relationship to resume a continental role. Until the end of the Cold War, this was balanced by keeping defense (guaranteed by the United States, with British mediation) outside the integration project. This meant that Europe’s direction was set by the “silent triangle” of France, the UK and Germany.

A quarter century later, the EU can no longer ignore defense. The U.S. now prefers to “lead from behind” in military matters, which Europeans only reluctantly accept as being their concern. The UK’s role as an intermediary is also diminished, as epitomized by the Brexit vote. With American commitment in question and the British on their way out, France is reaching out to Germany in an attempt to reinvent common defense structures on the continent.

Since German reunification, however, not only the silent triangle but also the Franco-German bond has lost most of its power. Much of this can be ascribed to the adoption of the euro, which softened French concerns about German resurgence. Ironically, the single currency deepened Germany’s economic dominance in the EU.

Impending elections

For now, Berlin and Paris are agreed on upholding the primacy of Franco-German relations. But political changes are coming. In France, the center right will pick between two former prime ministers, Alain Juppe and Francois Fillon, to be its standard bearer in the 2017 presidential election – setting up a likely runoff against Marine Le Pen of the National Front. In Germany, an embryonic Red-Red-Green coalition is an emerging option between the SPD, The Left and the Greens.

While it is premature to speculate about a common leftist platform, this possibility will weigh on political discourse as Germany approaches next autumn’s general election. The blurring of ideological divides that has been the hallmark of Chancellor Angela Merkel’s strategy may have weakened the SPD, but only at the federal level. Lower down, the CDU has now lost six consecutive state elections and looks headed for defeat next year in key states like North Rhine-Westphalia.

The choice of Frank-Walter Steinmeier to become Germany’s new president in March may strengthen the SPD’s hand, even though the post is ceremonial. Ms. Merkel confirmed her own plans to run for a fourth term in mid-November – though Donald Trump’s victory in the U.S. presidential election had already removed any remaining doubt on that score.

None of these developments will necessarily disrupt the EU’s core relationship. Ms. Merkel may survive at the head of a sufficiently stable grand coalition, while a center-right candidate could prevail over Ms. Le Pen in a runoff. Yet new party configurations will add additional strains. The National Front will be more firmly established in France as the second power in the land. The CDU/CSU, meanwhile, will be torn between centrism and the temptation for veer right toward the Alternative for Germany (AfD) – much as the SPD maneuvers between the Greens and The Left.

External commitments

Neither a CDU/CSU-led government of the center-right nor a Red-Red-Green coalition of the left would offer a coherent approach toward Europe. A Germany polarized into such blocs would sink into ever-greater disarray, with conflicting visions of the country’s social fabric and its role and position in Europe. This would be very different from past experience.

Since the early 1950s, Germany’s domestic agenda has largely been defined by its external commitments. These commitments are often only accepted by the opposition after a certain delay – as when the SPD dropped its opposition to NATO and rearmament in the early 1960s, or when the CDU/CSU embraced Ostpolitik in the 1980s, or when the SPD abandoned its two-state policy in favor of reunification in the 1990s.

Germany no longer faces such basic external dilemmas, which allow its parties to win and keep domestic majorities. NATO has lost its role as a primary political framework in the absence of any existential threat. The EU has become a lightning rod for criticism, but carping at the bureaucracy in Brussels or considering how to reform it have not sufficed to mobilize discontented electorates – as shown by the AfD’s search for new priority issues.

Where does this leave a Germany that until recently had defined its identity as a driver of European integration? Depending on the outcome of the elections, bilateralism could still be the preferred mode in Paris and Berlin. But this arrangement could be less acceptable to the rest of an enlarged and increasingly divergent Europe. Accordingly, neither Germany nor France are likely to prioritize their relationship at the expense of other key national interests. And the question becomes moot if right-wing nationalists come to power in France or a left-wing coalition takes over in Germany.

Vulnerable center

While France used to be Germany’s prime political partner, Great Britain was its closest ally on economic matters. Brexit is not a done deal and will not be for some time, especially now that it has become a constitutional issue in parliament. Yet the UK will never again carry quite the same weight in Europe, and the silent triangle will not work as it did in the past.

With the momentum for EU integration weakened, Germany has no choice but to define its national interests in a more volatile and diffuse multilateral environment. Member states will increasingly seek to build power through regional coalitions, such as the Visegrad Group and the Euromed Summit. One way or another, these countries are all economically dependent on Germany and vulnerable to German fiscal conservatism. They will likely seek to counter this German influence by banding together, exacerbating tensions that already split the EU along fault lines running north/south and east/west.

Germany is particularly vulnerable to this revival of traditional geopolitical divides. Much more than its midsized peers Italy and France, the German economy is heavily intertwined with these subregional coalitions. Germany’s export markets cover the whole of Europe, while its central position in various infrastructure networks such as energy transmission or telecommunications heightens delicate interdependencies.

The euro crisis showed the fateful interplay between strong economies like Germany and weaker ones like Greece. Once the debt crisis hit and the Greek finances collapsed, there were immediate calls for debt forgiveness and transfers – demands the richer countries were not prepared to meet. This showed the limits of EU solidarity, which were even more brutally exposed during the subsequent migration crisis. Both are a reminder that political moralizing seldom works when societies believe their future is at stake.

European concert

At this stage, neither the new nationalist parties nor the old internationalist parties offer convincing answers to Germany’s dilemma. Autarchic nationalism is not only counterproductive in terms of Europe’s complex ecosystem of interdependencies, but it also leads back to a past that would doom Germany to isolation and even pariah status. On the other hand, acquiescing to a looser-knit, fragmented EU does not provide much reassurance about the future.

What is in Germany’s long-term interest? Unlike France or the UK, its central location in Europe renders it less capable of achieving economic or social stability in an unfriendly neighborhood, or in isolation. Likewise, without a strong German economic backbone, Europe will find it hard to withstand tougher global competition. While the integration process has arguably run its course, Europe can only hope to retain global leverage if its leading countries act in concert. This is inconceivable without the UK, Germany and France.

Concerted action will require an intergovernmental approach within and outside the EU, based on the principle of subsidiarity. This would no longer be traditional European integration, but it might allow that model’s achievements to be preserved. Most importantly, it could provide another way of stabilizing Germany while binding it to the center of Europe.

Uncertainties abound, but empowered EU states need to move beyond crisis management and start shaping a common future. It would be a big help if Germany manages to preserve its internationalist ethos and keep its historical demons locked up. Present trends are not encouraging, but domestic and international affairs tend to move in cycles. With prudence, Europe may reach the end of this one safely.

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Source: Geopolitical Information Service



The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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