Euronews : The Briefing As Germany changes, so does Europe

 

Euronews : The Briefing

As Germany changes, so does Europe 

By Jacob F. Kirkegaard, senior fellow at the German Marshall Fund 

The new German government is full of contrasts.

Made up of a political mix of social democrats, greens and liberals, it marks a clear break from Angela Merkel’s increasingly cozy Grand Coalitions. Yet, with previous finance minister Olaf Scholz now appointed Federal Chancellor, Germany nonetheless has continuity at the top.

Multi-party coalitions are inherently less stable than governments with only one or two groups, making Scholz’s domestic political power base weaker than that enjoyed by prior leaders. He is hence less likely to serve as chancellor for as long as, for instance, Angela Merkel, and may not acquire the additional European gravitas and longevity in office bestowed on his predecessors. Scholz will struggle to replicate Angela Merkel’s recent political dominance in the EU Council.

But, at the same time, Scholz, as a social democrat leader, enters the Chancellery at a favourable time, when the centre-right European People's Party (EPP), the traditionally preeminent political group in EU politics, is a hollow shell of its former self. Derived now from the national leadership in all major member states, the EPP is fighting to maintain the control over the EU policy process that it enjoyed in recent decades.

Instead, Scholz, together with fellow socialist Pedro Sánchez in Spain and fiscally expansionist leaders in both France and Italy, sit at the end of the table in the main capitals.

The next 18 months will see key negotiations in Brussels around, among other topics, the reform of fiscal rules (officially, the Stability and Growth Pact), the long-term viability of the EU's €750-billion recovery fund and the huge investment needed to decarbonise and digitalise the whole economy. All this offers Olaf Scholz a rare opportunity to set the EU agenda in the long-term, alongside what appears to be – at least, on paper – like-minded European leaders.

Furthermore, Scholz becomes German chancellor at a time when the EU – as usual – is looking for German leadership, though today the challenges faced are very different from the internal financial and migration crises so common in the Merkel-era.

Now, Germany and the EU confront elevated external threats from an increasingly belligerent Russia, a rising China and a United States ever keener on mobilising its political and military resources in Asia. This will require a new kind of political leadership from Scholz and an end to Germany’s long tradition of alleging "historical reasons" to simply focus on exports and business and evade engaging in thorny political and military disputes around the world.

Given the very different global visions inside the SPD, a party containing a powerful pro-Russia faction, compared to both the Greens and the FDP, for whom human rights, democracy and environmental issues play a far larger role, dramatic clashes inside the coalition about the direction of Germany’s foreign policy will be inevitable. Keeping the three parties together on various international crises may prove to be Scholz’s biggest political headache as chancellor.

Domestically, the new German coalition must transcend the traditional economic policy fissures. Making the most of the pandemic-era suspension of the debt brake, the new German government will manage to find the necessary additional fiscal resources for its ambitious climate, digitalisation and social policy goals.

This will serve to prove that Olaf Scholz’s Germany has moved on from the Great Recession and today has different needs to deal with a European economy at risk of falling into Japanese-style stagnation.

It seems clear that such a domestic fiscal volte-face in Germany will entail some loosening effect on the parallel negotiations around the EU fiscal rules. This may very well be what Olaf Scholz had intended to happen in Europe from what he had planned for Germany.