Angela Merkel will have a fourth term in office, but not the way she wanted. In Sunday’s election, her Christian Democratic alliance polled at historic lows, and she will have to rely on an untested and difficult coalition or govern with an unprecedented minority government. Merkel will also face a much more fractious and angry opposition featuring the right-wing extremist Alternative für Deutschland (AfD), or Alternative for Germany, which made its parliamentary debut as the country’s third-largest party. By contrast, Merkel’s most likely coalition partners, now that the center-left Social Democrats have categorically ruled out participation in yet another grand coalition, placed fourth (the pro-business liberal FDP) and sixth (the Greens).
The result stands in stark contrast to recent elections in France, where Emmanuel Macron received almost two-thirds of the votes in the second round of the presidential contest held last May, and his new centrist party, together with its allies, got just over 60 percent of the seats in the National Assembly. Commentators and policy wonks were quick to point to Macron’s victory as evidence that the populist threat to European democracy had been vanquished. Many even claimed, after the French election, that Paris and Berlin would quickly revive the European Union’s traditional Franco-German engine and initiate overdue reforms to put the continent on a firmer economic and political foundation.
The German election results are forcing a drastic reconsideration of both those assumptions. Although Angela Merkel will return to power, it is under circumstances that will be to Europe’s detriment.
Democracy Without Solidarity
We should first dispel the illusion that the German elections tell us anything about the relative stability of Germany and France. What it does tell us is that electoral institutions matter. The results in France differ only because it has a directly elected president and a second round of legislative elections. If we compare the German elections with the first round of the French legislative elections, the results were pretty much the same. Macron’s centrist alliance and Merkel’s Christian Democrats each emerge with around one-third of the vote; the far right French Front National (FN) and the German AfD around 13 percent; the far left in France gets around 14 percent and in Germany it gets only around 9 percent strictly speaking, though Germany also has a much larger Green Party that is divided between more centrist and more radical elements.
This populist surge weakens democracy in both countries. The entry of close to 100 AfD members in the Bundestag is important in that respect. It isn’t just the negative aesthetics of seeing a xenophobic right-wing populist group gaining significant support in the former home of Nazism; it is the many practical ways that the AfD will influence the functioning of the legislative process and poison the content of Germany’s political discourse. The same goes for the FN in France, both at the national level and in the European Parliament. Political institutions only work if politicians want them to function. But if politicians discover they can profit more from the system by holding it hostage or breaking it to pieces, many will happily disregard the consequences for democracy.
But the more immediate implications of the German elections are going to play out in the European context. Set aside the grand federalist ambitions recently set forth in European Commission President Jean-Claude Juncker’s “State of the European Union” address to the European Parliament. Juncker’s proposals to fuse the president of the Commission with the president of the European Council were never going to happen even under the best of circumstances. Neither was his ambition to create a European finance minister based in the European Commission or to create a permanent budget line for the euro area as part of the Commission’s financial framework. The relative strength or weakness of French and German democracy matter little for such proposals because there is almost no circumstance where they would be in the French or German national interest.
The future reform of Eurozone macroeconomic governance and the consolidation of Europe’s banking union are very different matters. These are policy areas where France and Germany have a vital stake. Both Paris and Berlin want to prevent another crisis in the euro area, and both want to avoid a return of financial fragility. They have differed in the past on how best to achieve those objectives. Traditionally, France placed more emphasis on the exercise of discretion in the context of some kind of European “economic government,” and Germany favored the strict enforcement of a rules-based system. More recently, Macron and Merkel had shown signs of converging on a set of reforms that would trade off solidarity and collective decision-making (sought by the French) for greater national responsibility under European supervision (sought by the Germans). Macron scheduled an important speech to set out his own views on how that convergence should look to follow right after the German elections.
Unfortunately for Macron, the composition of the new German parliament — and hence the most likely new German coalition — pushes in the opposite direction. Merkel may support compromise with the French position, but the right wing of her Christian Democratic alliance is more skeptical and her allies in the liberal Free Democratic Party (FDP) are outright opposed. Moreover, the threat that the AfD would make further inroads into the electorate by criticizing any German concessions to the French on Europe will only harden those positions. Hence, we are much more likely to see continued divergence between German and French positions on macroeconomic policy matters than we are to see any new ambitious drive to reform European governance institutions.
A German Eurozone
The Franco-German divergence will likely manifest itself in five very specific ways. First, Germany will cease to be apologetic for its large trade surpluses. Instead, we will hear more talk about the virtues of German export competitiveness and about the need for other countries — France but also Italy — to follow in Germany’s footsteps of fiscal austerity and structural reform. Second, Merkel IV will be less tolerant of the risks that remain in the Europe’s banking system. Hence, we should expect more pressure on Italian banks to offload their non-performing loans and to cut down on their holdings of Italian government bonds. This emphasis on ‘risk reduction’ will be sold as a virtue in its own right and not as a price to be paid for further concessions on the German side when it comes to “risk sharing” in the Banking Union.
Indeed, and this is the third point, we should expect Germany to resist any efforts to create a common fiscal backstop for European deposit insurance or for European banking resolution. That resistance was always evident in the past and yet the hope was that it would decline alongside a reduction of risks in the European banking system. Such a link is unlikely to materialize. On the contrary, once the risk is reduced, there will simply no longer be any need for Germany to engage in a redistribution of responsibilities across national banking systems. This also applies to the creation of a common European sovereign debt instrument (or “eurobond”) but only more emphatically. The new German Bundestag — the largest ever, with 709 members — will be even less tolerant of the prospect of any kind of European fiscal “transfer union” than the one it replaced.
The remaining two points concern the European Central Bank (ECB). Post-election Germany is going to be even more in a hurry for the ECB to wind up its quantitative easing program and to move beyond the unconventional policy of taxing banks for holding their cash by charging negative deposit rates. It may even push for the ECB to follow the U.S. Federal Reserve in moving to normalize monetary conditions by raising interest rates. This kind of pressure is not likely to result in a radical change in ECB policy; the ECB is, after all, politically independent. But it will have an influence on how much the ECB’s Governing Council wants to push out the boundaries of its own mandate.
German pressure will also eventually translate into a more explicit claim by Berlin on the post of ECB president. This is the fifth and final way the German election will bear on Europe. Before the election, it was widely assumed that current Bundesbank President Jens Weidmann was a strong candidate to succeed Mario Draghi as ECB president in November 2019. Now that pattern of succession has become much more likely.
The implications of these changes in Germany’s position are not immediately problematic. So long as the European economy continues to grow, European countries should be able to offload the risks in their banking systems while at the same time adapting to a gradual reduction in monetary stimulus. They may even be able to undertake the kind of fiscal and labor market reforms that will give them something approximating German-style economic “competitiveness” (assuming that really exists).
The problem is that Europe will be only marginally better able to withstand the next crisis than it was able to handle the last one. It will have some resources to bail out countries and banks under close supervision, but not enough to handle all those that are likely to get into trouble or even to manage the potential crisis in Italy. In the end, a reformed European macroeconomic governance framework and a completed banking union are necessary to tackle such oversized problems. But Europe is unlikely to build out those institutions given the results of the German elections.
The process of forming a so-called “Jamaica” coalition government — named after the party colors of the Christian Democratic alliance (black), Liberal FDP (yellow), and Greens that adorn the Caribbean country’s national flag — is unlikely to be smooth and could well last months. The positions of the liberals and the Greens are often hard to reconcile. The FDP rejects the multiculturalism and open immigration policies the Greens celebrate, while their stances on the economy and further European integration are miles apart. It will be interesting to watch Merkel try to square that circle.
Long and arduous negotiations in Berlin are also bad news for British Prime Minister Theresa May and her unruly band of Brexiteers in London. After her much-anticipated speech in Florence last week, May had hoped to unlock the Brexit divorce negotiations during next month’s EU summit and move on toward discussions of a future “deep partnership” between the United Kingdom and the EU. Merkel is unlikely to be in a position to give Britain the green light by then, leaving Michel Barnier and the European Commission in charge of the details of the Article 50 divorce negotiations. German coalition talks will take time, and time is one thing Brexit Britain does not have, as the Article 50 clock keeps ticking obdurately towards March 29, 2019.
The German voters have spoken, and they are not alone in passing a broadly unfavorable judgment on their ruling elites. The same could be said about France, despite Macron’s centrist victory, as well as the United States of Donald Trump or the United Kingdom of Theresa May and Brexit. The challenge that comes from these kinds of electoral outcomes is that they increase the risk of democratic dysfunction. Institutions matter, but institutions can also be broken.
In turn, such election results lower the resilience both of our political systems and of the economies and societies they are meant to serve. The question is whether politicians can find some way to reverse the course of this kind of degeneration. Angela Merkel is probably the best suited in terms of temperament, experience, and ability to rise to the occasion, even though her new coalition will test her leadership skills to the limit. Institutions do matter, but character and leadership can shape institutions. Let us hope Merkel’s fourth term in office turns out to be her best.
Photo credit: TOBIAS SCHWARZ/AFP/Getty Images
Matthias Matthijs is Assistant Professor of International Political Economy at Johns Hopkins University’s School of Advanced International Studies (SAIS). He also edited a special issue on “Democracy Without Solidarity: Political Dysfunction in Hard Times” that was published earlier this year in Government and Opposition. Follow him on Twitter @m2matthijs.
Erik Jones is Professor of European Studies and International Political Economy and edited a special issue on “Democracy Without Solidarity: Political Dysfunction in Hard Times” that was published earlier this year in Government and Opposition.
Tags: Elections, Europe, European Union, France, Germany, populism
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After World War II, the West gave Germany two great gifts. The first gift was democracy; the second gift was being integrated into a Europe of free nations. This also included the overriding vision that one day both gifts could be combined to create a democratic United States of Europe. But there was a lack of determination and strength to accomplish this. To make matters worse, both gifts have suffered from the attempt to use a common currency to integrate Europe. Postwar German democracy has never been in such a sorry state as today. It has been a long time since the peoples of Europe eyed each other with so much mistrust.
That is the current situation. Next week, Germany's Federal Constitutional Court will issue another ruling on Germany's euro policy. This is not expected to clear the air or fundamentally improve the situation. A court decision cannot accomplish that. But something must happen. We cannot allow both democracy and Europe to go to rack and ruin. Democracy and European integration form the foundations of our country. The problem is that they have come into contradiction with each other. Assuming the debt mania doesn't continue to spiral out of control, it's a fact that democracy impedes a rapid rescue for the euro, while a rapid rescue for the euro undermines democracy.
Such a contradiction begs a decision. What is more important to the Germans: their democracy or Europe? Or is there a way to reconcile the two, democracy and Europe? It isn't easy. It cannot be done without risks. But there is a way.
The State Of Democracy
The rescue policy for the euro has changed the country's power structure. The winner is the executive, in other words, the government. German Chancellor Angela Merkel negotiates in Brussels with the other heads of state and government. This is the body where the major decisions are made, decisions which are usually hammered out in advance during bilateral talks. What's more, the executive has the strongest apparatus behind it. In Germany, it is only the experts in the Chancellery and the Finance Ministry who have any idea what is happening and what needs to happen.
A leitmotif of the current administration is the desire to do things under the table. For example, Merkel created a small, nine-member committee in the German parliament, the Bundestag, that is supposed to provide sufficient parliamentary control over certain decisions. She allows the Bundestag to vote on issues relating to the euro rescue fund, some of which have already been superseded by the time of the vote. Merkel was caught in the act each time, but she kept trying. She is overstepping her powers so that she can govern halfway efficiently.
Parliament is the loser here. The lawmakers are not present in Brussels when the negotiations are being conducted and the decisions made. They don't have any idea what is happening and what needs to happen, because they lack the appropriate tools -- and this in an area which is key to the parliamentary system, namely budgetary policy. Hence, they are barely able nowadays to perform their actual function, which is to hold the government to account.
The opposition is no longer playing its normal role because the problems are so grave that Germany's mainstream political parties -- the conservative Christian Democratic Union, its Bavarian sister party the Christian Social Union, the center-left Social Democratic Party, the business-friendly Free Democratic Party and the Greens -- are virtually obliged to stand shoulder to shoulder. Anyone who doesn't vote with the majority is almost seen as guilty of treason. But the desire to engage in insubordination is actually a virtue for a parliament. Until now, though, the leitmotif here has mainly been obedience.
The Federal Constitutional Court is the winner here. Since a number of individual parliamentarians and citizens refuse to support the euro policies that the majority has decided upon, they often turn to the Karlsruhe-based court. More than ever, the judges there have become, if you will, the supervisory board of German politics. Their corrective interventions have almost become routine, but that is not the role they were intended to play. What's more, despite all their freedom, they are not free enough. Granted, they have ruled in favor of some plaintiffs, but only to the extent that the executive can basically continue with business as usual. The leitmotif of the judges is functionality. When it comes to European policy, the court has almost become an organ of government.
There is now another powerful player, one which is not included in any theory of democracy: the financial markets. They force politicians to act and determine their thoughts and behavior, as if traders, and not the people, were the ultimate source of political power and authority. Their leitmotif is greed. Merkel has already obligingly promised the financial markets that she is working on a "market-compliant democracy."
The losers, in any case, are the people, who, according to the German constitution, should be the source of all state authority. In a representative democracy, voters have power over parliament -- and when parliament loses, the country's citizens also lose. To make matters worse, they have seldom been more confused by political events. What exactly is the ESM? How does it differ from the EFSF? What is the relationship of the ESM and the EFSF to the ECB? Who actually controls these bureaucracies? What is the impact of this or that decision on my life -- and on my pocketbook? The politicians have created such a complex bailout structure that hardly anyone can understand it anymore. Since voters can no longer make decisions based on reason, they are forced to rely on their emotions. And emotions are not always the best basis for decisions, particularly when it comes to European issues.
Consequently, German democracy currently has a baffled population and an overwhelmed parliament, which is dominated by a slightly less baffled and less overwhelmed government and the financial markets. Such a democracy is clearly in trouble.
The State of Europe
If one had to very briefly summarize what characterizes European history, it could look like this: Many of humanity's best ideas come from Europe -- such as democracy, the Enlightenment and the rule of law, along with great discoveries in the natural sciences. But all of this did not prevent Germany from sparking two world wars and carrying out the Holocaust. Despite utter devastation, the nations of Europe nevertheless managed to reconcile their differences and build the European Union.
This is the history that makes a European feel both humble and proud. The politicians of the postwar era used this history and the emotions it evokes as arguments when they called for European unity as an urgent project. Their rhetoric always sounded good, but it wasn't entirely honest. In reality, countries still put their national interests first. One initial intention was to tame Germany and give France influence over its coal reserves. Postwar Germany wanted to use Europe to liberate itself from its pariah status. Later, the euro was the instrument of a second taming attempt. This time the French and others sought to break the power of the Bundesbank, Germany's central bank. Germany, for its part, saw how a currency union could benefit its export-oriented industries.
Today, appealing to emotions no longer does the trick. The fear that the nations of Europe could invade each other once again has evaporated. Peaceful coexistence is now taken for granted. When politicians invoke it in their speeches, it sounds hollow. Furthermore, spatial proximity has lost some of its importance. The young generation is globalized and has a worldwide outlook.
It's no secret that Europe has always been an elite project. Many politicians in Germany thought that European unity was a good thing, and pursued it more or less surreptitiously, in any case without consulting the population. They built a Europe that suited them, without a strong parliament, but which had a strong bureaucracy and where national governments had great influence. They thought that this Europe would be so wonderful that one day its citizens would be delighted that it existed. This approach, dubbed "output legitimacy" by scholars, is based on achieving legitimacy via results.
It may not be perfect, but it's an acceptable method. Democracy is never flawless; it's never purely the rule of the people. Sometimes a country is governed contrary to the will of the people, or without taking it into account, at least for a certain amount of time. On top of the results that have been achieved, elections then provide a retroactive legitimacy.
But it was, as is now clear, a serious mistake not to link the introduction of the euro to the creation of a European financial government subject to parliamentary control. In its current form, the monetary union is no longer a success. Everyone did what they wanted. Some ran up debts that they could handle, while others ran up debts that they couldn't handle. And now we face a major crisis.
Europe is in a serious predicament. The unifying concept of peace in Europe has lost its appeal. The interests of the member states run counter to each other. Some want as much solidarity as possible in the crisis, while others want as little as possible. And there is no process to resolve these conflicts in a democratic and effective manner. Europe, then, is also in trouble.
Time to Ask the People
German democracy is suffering under Europe, while Europe is suffering under the national interests of the member states and the lack of a sensible political structure. That is the current state of democracy and Europe, the foundations of postwar Germany. What direction should we take now? Does democracy take priority over Europe? Or does Europe take priority over democracy?
There is a way to avoid this conflict. The Germans can reconcile their democracy with European integration. To do that, they would need to be asked.
Fundamentally, it is a good thing that we have a representative democracy where people go to the polls and politicians make decisions between elections. They have the expertise and the time to consider how society should best be organized. But sometimes we have to decide on the really big issues -- and then it is time to ask the people. The current crisis involves a really big question: Is the population prepared to transfer sovereignty to Europe so that effective euro policies are possible?
This doesn't mean that we have to rewrite the German constitution. It doesn't mean that we have to create a United States of Europe. For the time being, it's enough just to clarify the issue. From a legal perspective, it's not very easy, but it's possible. Where there's a will, there's a way.
The debate that would be held in the run-up to such a referendum would already be valuable in itself. Although the focus is fiscal policy, Germany would have to engage in a broader debate over what kind of Europe it wants and what its own role should be. The politicians would first have to make up their minds and then, assuming they make the right decision, campaign for greater integration. But this time they would use modern arguments in favor of Europe, such as a large shared culture, a greater say in global politics and favorable conditions for German exports.
If the politicians manage to convince the majority of the population, the German government would have a mandate to campaign in Europe for greater integration in terms of fiscal policy, in exchange for relinquishing sovereignty. It would then have a strong legitimization, a strong mandate for pro-integration policies. That would be the better scenario.
The worse scenario, of course, would also be possible -- but it wouldn't spell the end of Europe. The EU has already survived a French referendum that rejected the proposed European constitution. The German government could continue to work to help debt-stricken countries. This would be done in accordance with German budgetary law, which would not be weakened.
No matter what happens, democracy is the winner in such a referendum. The cause of European integration could win, but it could also suffer a setback. But this way the proper checks and balances are in place. After all, when push comes to shove, democracy ultimately has to come first.
Translated from the German by Paul Cohen