Why The German Elections Matter, And Not Just For Germany

In Germany, unlike in recent French and Dutch elections, there is little risk that the government will include nationalist or Euroskeptic forces. The AfD likely will win a handful of seats in the Bundestag, but other parties for the most part will refuse to cooperate with it. Meanwhile, The Left will also struggle to find partners, though it could possibly become a member of a broad center-left alliance. But while the German election doesn"t pose the same threat to the stability of the eurozone as did the French or Dutch elections, the next German government"s composition will play an important role in determining the future of the European Union.

Over the past decade, a combination of economic crises and strong nationalist sentiments made institutional reform in the European Union impossible. Now that most member states are growing again, and as the 2017 electoral season is reaching its end, the political environment for reform has become more favorable. Furthermore, last year"s Brexit referendum convinced most EU members and institutions that reforms are necessary to revitalize the bloc after years of shocks.

As the biggest economy in Europe, Germany will play a significant role in EU reform negotiations. Thus, the ideological composition of its government will be a crucial piece of the reform puzzle. In recent weeks, France, Italy and Spain each have made reform proposals, including plans to increase blocwide investment and introduce risk-sharing measures in the eurozone. Italy and Spain have even proposed issuing debt that is jointly backed by all the members of the eurozone. Meanwhile, France said that it will hold off on additional proposals for the eurozone until after the German election, so that Paris and Berlin can discuss the plans together.

Whoever has control in Germany"s parliament will influence the negotiations and eventual compromises made between the northern and southern blocs of the eurozone. If the election results in a center-right coalition led by the CDU, the government would probably take a skeptical view of plans presented by Southern Europe. A center-left coalition led by the SDP, meanwhile, would be more open to them. But regardless of who is in charge, Germany and other Northern European countries will be reluctant to share risk with their Southern European counterparts. Even though Berlin is not entirely opposed to Southern Europe"s proposals, it will almost certainly request tighter control of fiscal policies in the eurozone — a concession that Southern European countries will resist.

The makeup of the next coalition in Berlin will also influence debates on a variety of other EU issues. For example, Germany falls well short of NATO"s goal that its members spend at least 2 percent of gross domestic product on defense, and the CDU is more willing to increase military spending than the SPD. When it comes to Brexit, most German parties align on a few things: they are in favor of reaching a deal with the United Kingdom, and they agree that the bloc"s future relationship with London should include fewer benefits than EU membership would have granted. However, London would prefer a CDU-led government to one led by the SPD, given Schulz"s background as former EU Parliament president and his strong defense of the bloc and its institutions.

And it"s not just the two big parties that will affect continental affairs. Depending on the Cabinet positions they are given, junior coalition partners could also shape some of Berlin"s decisions. The FDP, for example, would probably resist the kinds of protectionist moves that France is proposing, while The Left would push for strong government spending and higher taxes for corporations. These parties" abilities to shape policy will of course be limited, but they should not be completely disregarded.

Germany Tackles a Challenging Future

Beyond the larger concerns of the European Union, Germany is also facing a number of long-term domestic challenges. And while discussion of those issues has been largely absent in the electoral campaign so far, the country will eventually to have reckon with them.

The German economy has grown at a decent pace in recent years, and unemployment is at record lows. However, as a member of the eurozone, Germany could still be harmed by developments in other countries. For example, the bailout program that helped Greece stabilize its economy is set to expire in mid-2018, and Athens likely will request help to reduce the burden of its sovereign debt. This idea is controversial in Germany, and the FDP has even suggested that Greece leave the eurozone in exchange for debt relief. The Italian general election in early 2018 offers further challenges. There is a real chance that Italian votes will put a euroskeptic government in power, which would create a major roadblock to eurozone reforms.

Germany"s stability could take also hits for reasons more within its control, as the country"s export-driven economy faces pressure from its main trade partners. Southern European countries want Berlin to increase domestic spending to boost imports, and the United States has repeatedly criticized Germany"s massive trade surplus. A more protectionist stance by the United States, Germany"s main trade partner outside the eurozone, could damage German exports. Moreover, Germany"s flagship industry — its automotive sector — may need to readapt its business model as it faces competition from new technologies and foreign vehicle manufacturers as well as the aftermath of the "dieselgate" emissions test-rigging scandal.

"Zumutungen!" Buyer's Remorse In France, Impossible Situation For Germany

Authored by Mike Shedlock via MishTalk.com,

Now that the cheering over the French election has died down, reality will strike France and Germany like a cold bucket of water thrown in one’s face on a Winter’s day.

Germany was guaranteed to not like the result no matter who won. The final choice was between an anti-EU Marine Le Pen and a budget-comingling Emanuel Macron who needs EU treaty changes to get what he wants.

And in France, buyer’s remorse has set in. Unions are already protesting against Emmanuel Macron’s policies.

Zumutungen!

The word of the day is Zumutungen. Google translates that from German as “impositions” but the actual meaning is quite a bit stronger according to Eurointelligence.

The German political establishment clearly favored Emmanuel Macron over Marine Le Pen during the election campaign, but they are nervous about Macron’s eurozone agenda. As FAZ notes this morning, the relief over his victory still weighs heavier than the reality – which is that Macron and Angela Merkel have diametrically opposed views on the future of the eurozone. Merkel yesterday confirmed her readiness to engage in a dialogue with Macron, but said that eurozone bonds are a no-go. And without Eurobonds – or other forms of a eurozone-level fiscal backstop – none of the Macron agenda would work.

The FAZ article uses a word for which there is no straight translation – “Zumutungen” – which means an excessive and immoral demand that one can conceivably not fulfil. The paper makes the point that François Hollande also favoured the same kinds of reforms, but let go when he realized that there was no support from Berlin. The article notes that Macron’s ideas go way beyond those of Hollande. His eurozone agenda is not about crisis resolution, but economic shock absorption in general, as evidenced by his ideas for a pan-European unemployment insurance. FAZ is appalled by all of this, as well as by Macron’s idea of a Buy-European act. The paper noted that the eurozone finance ministers, at their meeting in Malta, criticised similar ideas by the European Commission.

On day one after Macron’s election, there is a first taste of resistance in the form of street protests against his labor law reforms. Labor reforms have been a particularly traumatic experience for the outgoing government. The radical trade unionists are taking to the streets, while the more cautious headquarters warn against implementing the whole agenda.

Volcanic Forces on Germany

Telegraph writer Ambrose-Evans-Pritchard accurately states Volcanic Macron Forces Germany to Come Clean on its Real EU Agenda.

Emmanuel Macron’s lightning conquest of France has put Germany in an awkward spot. French voters have picked an apostle of Europe and an arch-defender of the Franco-German axis. While this is welcomed with jubilation by some in Berlin, it raises thorny questions that others would prefer left unanswered.

He plans Nordic labor reforms, easier collective bargaining rules, and the sort of tax shake-up that German leaders have long demanded. The quid pro quo is that Berlin must agree to eurozone fiscal union, and cut its corrosive current account surplus – now 8.6 percent of GDP and in breach of EU rules.

“If France is not reformed, we will not be able to regain the confidence of the Germans,” Mr. Macron told Ouest-France. “After that, Germany must ask whether its own situation is tenable. It is accumulating surpluses which are neither good for its own economy nor for the eurozone.”

He wants a eurozone finance minister and budget, with joint debt, and a banking union with shared deposit insurance, all legitimized by a new parliament for the currency bloc. It implies a unitary eurozone superstate.

This calls Berlin’s bluff. The German elites often argue that they cannot accept such radical proposals as long as other eurozone states scoff at budget rules and fail to put their house in order.

The Handelsblatt accused Mr. Macron of “Teuton-bashing” over the trade surplus. The German Council of Economic Experts holds defiantly to the national view that trade surpluses are proof of virtue. It sees EMU debt-pooling as a slippery slope towards a “Transferunion”.

Mr. Macron’s plans would require a new EU Treaty, opening a can of worms that several states are determined to avoid. Berlin has no intention of sharing Italy’s debts, whatever France does.

Germany’s top court says EMU fiscal union and debt-pooling would require a change to country’s constitution. “Politically, that is absolutely impossible,” said Heiner Flassbeck, former economy minister and now at Hamburg University.

France is split on deep lines cleavage, Balkanized five ways. The scale of Mr. Macron’s 66:34 victory on Sunday is misleading. Blank protest votes – “Neither Plague nor Cholera” – jumped threefold to 11.5pc. The abstention rate jumped six points to 25.4pc.

The Front National’s Marine Le Pen botched the final weeks of her campaign with confused messages over pensions and the French franc, but she still won 34 percent of the vote. Five years ago this would have been deemed impossible. We now shrug off earthquakes a little too lightly.

German Elections

Angela Merkel has recently surged in the polls vs. SPD candidate Martin Schulz.

Is there a fundamental reason for the shift?

Yes, Schulz is far more open to Macron’s views than is Angela Merkel. Despite the fact a majority of German citizens do not want Merkel, voters may be stuck with her as a counterbalance to more radical ideas that SPD may be willing to try.

Germany a Loser

I discussed much of this setup long ago, before the French primaries, on January 15, in Germany a Loser No Matter Who Wins?

Germany a Loser No Matter Who Wins?

• Le Pen: Eurosceptic – Seeks better relations with Russia


• Macron: Pro Europe but seeks a common eurozone budget for investment and financial assistance in case of shocks.


• Mélenchon: A socialist who will not be in favor of reforms France desperately needs


• Valls: After the 2016 Nice attack, he was booed for saying that “France will have to live with terrorism.”


• Fillon: Fillon aims to reduce the public sector and cut 500,000 civil-service jobs.  He wants the state healthcare program (securité sociale) to work better with fewer payments. Fillon is in favor of increasing the retirement age to 65. He seeks better relations with Russia.

Of the five, Germany could work best with Fillon. But his pro-Russia stance poses at least a minor problem.

O Come, O Come Emmanuel

I ask again, Is Macron the Anti-Trump, European Obama Savior?