Germany’s boring election masks troubles ahead

The new coalition government consisting of the centre-right Christian Democratic Party led by current Chancellor Angela Merkel and the business-friendly Free Democratic Party, which is set to take office in early November, will assure greater stability, rather than a continuation of her fraying coalition with the Social Democrats. But the benefits of such internal stability mask the likely international frictions on how best to revive the global economy and how to deal with Afghanistan, Iran and a number of other global concerns.

Moreover, the election outcome presages a profound political realignment in Germany that threatens to distract and preoccupy the country’s leadership, potentially denying Germany’s European Union partners and the United States the strong German partnership they might prefer.

These Bundestag elections were widely viewed as the dullest in modern German history, in part because there was no substantive debate about the issues facing the nation, Europe and the world. The campaign largely focused on personalities and the vote-splitting tactics necessary to form a new governing coalition.

Merkel’s deft handling of the global downturn in the run up to the election largely defused the economy as a campaign issue. But she merely bought time, failed to solve severe structural problems, and mortgaged the country’s future. Her new governmental coalition faces a huge economic challenge that will only complicate life for Germany’s European and global partners.

German banks are sitting on a mountain of bad debt, much of it ill-conceived purchases of US mortgages, but some of it lending in Eastern Europe that may never be repaid. Thanks to increased public spending and a slump in revenues, government debt is expected to rise to 82 per cent of GDP, well above the 60 per cent ceiling deemed appropriate for members of the Euro currency area.

Unemployment, at 8.1 per cent this year, is expected to rise to as high at 10.9 per cent in 2010, as companies that had been delaying layoffs until after election day begin to trim their payrolls.

And a new constitutional amendment requires a balanced German budget by 2016. This could soon necessitate jarring cuts in social welfare spending and new taxes that will complicate Germany’s collaboration with other industrial countries in dealing with the after effects of the economic crisis, if, for example, a sluggish European economic recovery leads to calls for more German stimulus spending.

These looming economic travails are of particular relevance to outsiders because German economists and officials persistently reject the idea that recovery requires fundamental changes in the German way of doing business. And yet at the G20 meeting in Pittsburgh two days before the German election, Merkel signed the Leaders’ Statement pledging “to adopt the policies needed to lay the foundation for strong, sustained and balanced growth in the 21st century”.

To the Obama administration, in particular, that phrase means Germany should reduce its globally destabilising export surplus, consuming more at home of what it produces. But candidates here campaigned on promises to maintain Germany as the “exportweltmeister”. With joblessness rising and recovery sluggish exhortations for Germany to rebalance its economy are likely to fall on deaf ears.

There may be even more visible and fractious disputes ahead over foreign policy with Merkel’s estranged Social Democratic partners. The election ushered in what could prove to be the most profound re-alignment of Germany’s party system in recent history. The Social Democratic party lost about a third of its voters. The German left will spend the next few years reconstituting itself. This identity crisis is likely to manifest itself in divisive votes in the Bundestag and street demonstrations. With joblessness growing and promises by the new government to revive the nuclear power industry, policy disagreements could turn ugly as various populist factions contend for leadership of the left.

Merkel promises continuity in national foreign policy. But the campaign provided no explicit popular mandate for such continuity and the election results promise future friction, especially with regard to Afghanistan.

The Merkel government has forcefully defended German engagement in Afghanistan. Her new Free Democratic partner also backs German engagement. And Merkel has called for an international conference on Afghanistan that German officials privately suggest could give her cover for new German commitments to that war-torn country.