Jesse Norman is the Member of Parliament for Hereford and South Herefordshire. His new biography of Edmund Burke was published recently.
According to the front-page lead in Saturday’s Times (£), Germany and Britain are forging a “secret deal” in the EU, trading mutual political support for German car manufacturers and British financial institutions.
Far from being splash-worthy—“Shock, horror! Countries go in to bat for major industries”—this feels more or less like diplomatic business as usual. But it raises the further question: What will relations between Britain and Germany look like over the next few years? And what difference if any will the recent German elections make? Here are a few thoughts, inspired by the recent Konigswinter Conference, in which I took part.
1. The German elections offer a very mixed message
The federal elections in September were a paradox. By common consent, they were short on content, long on image, rhetoric and feeling. Many of the biggest issues were ducked, in a spirit of some complacency.
Yet the result seems to reflect profound popular unease. Voters gave no clear mandate. Angela Merkel won overwhelmingly as Chancellor, but her Christian Democrats (CDU/CSU) were denied a majority in the Bundestag. Meanwhile her allies the Free Democrats (FDP) failed to hit the 5 per cent participation threshold and dropped out of the Bundestag altogether. The Social Democrats (SPD) did badly, and the Greens were pegged back. The result is that the old voting blocks no longer exist. Something new is needed. Yet nothing new seems on offer, or even desired.
2. We need to be clear about where German priorities really lie.
Germany views the past decade with some satisfaction. The Schroder reforms to the labour market have helped to transform her economy from sluggishness to industrial dynamism, a process latterly assisted by the support given to her exports by the Euro. On balance, virtually no-one I have spoken to in Germany over the past few years regrets the country’s decision to support the Euro, though they acknowledge its many disastrous consequences. This is a position they may yet come to regret.
Domestically and in foreign policy, the overwhelming focus is on stability. At home, there is much debate on minimum wage legislation, on the federal budget and how it is allocated, and on the Energiewende—the transition to 100 per cent per cent renewable energy, which is already proving extraordinarily expensive. There is a vast need for reform of the service sector, which is governed by an array of burdensome rules and regulations. Entrepreneurship remains at low levels, except in Berlin.
Yet it is not clear how much real interest there is in reform, or indeed in renewing the sources of German economic growth. Perhaps the latest OECD PISA report on skills, in which Germany featured well down the list, may make a difference. But don’t bet on it; Germany has hugely benefitted from the single market in goods, which feeds her manufacturing industry. Not surprisingly, she doesn’t feel the same about services, in which Britain is so strong.
Internationally, Germany’s priority is simple: Eurozone, Eurozone, Eurozone. Here again the emphasis will be on continuity. Germany will fight hard to prevent any direct socialisation of debt, while supporting further bail-outs and austerity in the southern tier of countries. Any moves towards inflation or even modest domestic fiscal stimulus, which would take some of the economic pressure off Spain, Italy, Portugal and Greece, are almost literally inconceivable in Berlin.
Again, the paradox is that as monetary conditions in the Eurozone have eased, so has the impetus for real reform. Yet the underlying economic position of the Southern tier remains dreadful. At best, it will see slow recovery and very subdued growth, perhaps for a decade. And there remains a real risk of disaster, not least since Eurozone crises typically come very suddenly, out of nowhere.
Italy has just experienced yet another serious political disturbance. France is in a deep malaise. Meanwhile Washington DC is in shutdown, and Germany has yet to form a new government. There’s not much here for the optimist.
3. What next in Germany?
Britain’s coalition government may have been formed in “Five days in May”. In Germany, however, they know how to do these things the old-fashioned way. The process will take many weeks yet.
A Grand Coalition of the CDU/CSU and the SPD remains the most likely outcome. But the SPD will not go in with much if any enthusiasm. The precedents for the well-being of the junior partner are mixed, to say the least: OK in 1966, when the Kiesinger coalition gave way to the election of the SPD’s Willy Brandt as Chancellor in 1969, but disastrous for the SPD in 2005, after which its vote fell to an all-time low in 2009.
There remains much hostility among the SPD to Mrs Merkel. But if negotiations for a Grand Coalition fail, the Chancellor will almost certainly go for another election rather than try to partner with the Greens. Polls suggest the CDU/CSU could then secure an outright win, to the further detriment of the small parties. That creates a huge dilemma for the SPD. So the betting is in favour of a Grand Coalition, to be finally agreed in mid-November.
4. Implications for Britain
What does all this mean for Britain? At the top level, relations between the two countries remain very warm, and Mrs Merkel bestrides German politics like a colossus. For Britain, and especially for those of conservative disposition, this is all to the good.
But the combination of a Grand Coalition, domestic concerns and Mrs Merkel’s natural instinct for the common ground will limit her freedom of manoeuvre, especially if (as seems likely) the SPD gain the Ministry of Finance. The two countries share a common understanding of the urgent need for growth in the Eurozone, and for a repurposing of EU institutions along more accountable and market-oriented lines. There is, too, more scope for repatriation of powers than is commonly recognised, in the run-up to 2017. But for those interested in reform of the EU, the German elections may yet prove to be a mixed blessing.