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Germany

 

As Mrs. Angela Merkel looks out of the windows of the white and shining Federal Chancellery on the banks of the River Spree these days she has plenty of reason to worry about the future of the European Union and Germany’s role in it. To her East she is confronted by the nationalistic, xenophobic and increasingly authoritarian governments of Poland and Hungary. Also to the East she has to deal with an aggressively expansionist Russia with which relations have sharply deteriorated. To the North she encounters the challenge posed by the United Kingdom, which has just formally initiated its departure from the EU. To the West she must find ways to cooperate with the new US administration of President Donald Trump, who to most Europeans is still an enigma they find difficult to decipher. And to her South she can hardly avoid the sight of Italy and Greece, two countries in deep economic difficulties and in need of financial help if they are to remain members of the EU and its common currency.

Rattled by a bruising setback late last year in local elections in Mecklenburg Vorpommern, her home region where she has her parliamentary seat, Mrs. Merkel, now 62, has been backpedaling on the immigration policies that have cost her so much political support. No longer is there talk of “wir schaffen das,” meaning “we can do this” and referring to the acceptance of hundreds of thousands of refugees from the war-torn regions in the Middle East without much, if any, screening. Berlin now is circumscribing access to asylum much more tightly and is speeding up the deportation of migrants who are being denied refugee protection. The government has become noticeably more resolute in expelling those who represent “a threat to public safety,” such as criminals and potential terrorists. Video surveillance of public places has been increased, the powers of the police have been expanded, more money is being allocated for equipment, and there have even been discussions about possibly banning the burka.

It is, no doubt, clear to Mrs. Merkel and her confidants that her bid for a fourth term at the helm is likely to turn the Bundestag elections next September 24 into a referendum on her policies, and that in Germany, as elsewhere, the trend is away from establishment parties toward upstarts that are much more Eurosceptic and in favor of tight curbs on immigration. In the recently concluded Dutch elections the incumbent Prime Minister Mark Rutte and his VVD party were able to fend off a potentially painful challenge from the populist far-Right Freedom party of Geert Wilders, but it does not necessarily follow that the forces of Marine Le Pen in France will be defeated just as easily. In Italy, the pro-EU center has been clearly shrinking and there continues to be a distinct possibility of the populist, anti-EU Five Star Movement coming to power in the next 12 months. In Germany, the Alternative fuer Deutschland (Alternative for Germany or AfD) is still performing strongly, notwithstanding recent poll results that hint at a loss of its momentum. It will almost certainly become a vocal force in the Bundestag.

As I emphasized in an earlier letter, if there is a real threat to Mrs. Merkel’s political position it comes from the Center-Left Social Democrats under their recently anointed leader Martin Schulz. The SPD has been surging in the polls and has been taking advantage of the vulnerabilities of the Chancellor’s CDU/CSU. True, the economy is going strong on the back of record exports. But Germany’s massive foreign-trade and current-account payments surpluses have put the country into the cross-hairs of critics in deficit nations, of which the US is only one. Weaker members of the Eurozone are adamant in their demands that the European Central Bank stick to its expansionary monetary policies, although these are increasingly too loose for Germany (where inflation ticked up to 2.2% in February). Recognizing that the Federal Republic’s high savings rate (about 10% of GDP, versus 3% for the US) is responsible for the enormous external surpluses, they want Berlin to crank up public and private consumption.

Even the CSU, the CDU’s Bavarian sister party, has been calling for “the greatest tax reduction in German history,” given that the federal government last year ran up a budget surplus of EUR 23.7 billion. In the CSU’s view the tax cuts should come at the expense of public-sector spending, whereas the Social Democrats want to boost outlays from the public till. At this point, Mrs. Merkel still has a reasonable chance of winning re-election next fall, but even if her CDU/CSU were trounced by the SPD and Mr. Schulz became Chancellor, economic policy would not change a great deal. The SPD would need a coalition partner, and on present indications a resurrection of the Grand Coalition (except this time with the CDU/CSU in the junior position) is still much more likely than any new Left-wing alliance including the formerly Communist Left party and the Greens. And in the end, I do not believe that the German public will be easily diverted from its predilection for saving or from the notion that debt is bad, or will be persuaded that inflation is a good thing and that righting trade imbalances should be the job of the country with the surplus, not of those with the deficits.

What may change, though, is the critical role Germany plays as the keystone member of the European Union. With a strong political majority, Mrs. Merkel would not have to be overly concerned about the precise form Brexit will take. She could, and probably would, accept compromises involving immigration control and single-market access, especially as Germany exports roughly twice as much to the UK as it imports from there, meaning that the Federal Republic has much to lose in a disagreeable separation. With a strong political majority, also, Mrs. Merkel was able to give her nod to Eurozone rescue operations and to bailout programs for Greece, Ireland, Portugal and Spain. Were her position to be seriously weakened, so would be her ability to press for a soft Brexit and to make sure that the persisting Greek and Italian financial problems are tended to. Also:

The question is still wide open as to the direction the EU should take post-Brexit, whether it should loosen up and return to member states some of the powers currently concentrated in Brussels, or should march on toward ever greater integration, political as well as economic. If there is one thing that the British vote for Brexit has made clear, it is that in a worst-case scenario the European Union can still break up. Germany under Merkel has been instrumental in holding the bloc together. Were she to lose the Chancellorship, this would mean that the legislature, now relatively weak, would strengthen materially, while the executive, now strong, would weaken. For the EU, this would not be a good development and the possibility underscores the significance of the upcoming elections in France. If the pro-EU, pro-German Emmanuel Macron wins the Presidency, the bloc’s main axis would remain intact and its future would look reasonably bright. If Ms. Le Pen wins, the Franco-German partnership will suffer gravely, and so will the EU.

Global Perspectives by Dr. Hans Belcsak