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.

But there is no other issue where elite thinking in Berlin is so far removed from German public opinion. Three-in-five Germans now want their 4,000 troops to come home from Afghanistan. Few Germans believe that the Afghanistan operation is a war of necessity to deny Islamic terrorists a safe haven. And scepticism is growing about the mission among political insiders and prominent journalists, a worrisome development for Germany’s allies in the Afghan War.

Merkel’s first test will come later this year, when the new Bundestag must vote to continue the German troop commitment in Afghanistan for another year.

In the past, party discipline ensured such support because Social Democratic members of the outgoing coalition government never broke party ranks in serious numbers. This year, out-of-power left-wing Social Democrats will feel no such constraint. In fact, they may see a no vote in the Bundestag as a way to recapture some of their voters who defected to the Left Party in the recent election. That group had its best showing ever campaigning, in part, on a “get out of Afghanistan” platform.

Continuation of the German mission in Afghanistan is not in doubt, at least this year. But, in the long run, Merkel can hardly continue policies opposed by three-fifths of her electorate.

Iran could prove a second post-German election headache for Europe, the United States and the rest of the world. There is no widespread sense of urgency in Germany about containing the Iranian nuclear program and no perception that it poses an existential threat to German security.

German officials say they will ratchet up economic sanctions on Tehran if necessary. But Germany has long been one of Iran’s biggest suppliers of manufactured goods. So, the German business community and the economics ministry in the new Berlin government may not willingly go along with export controls.

At a time when the European Union, buoyed by the “yes” vote in Dublin, is poised finally to approve the Lisbon treaty and have its own joint foreign policy, Berlin seems to be distancing itself from Brussels. Fealty to the European Union was notably absent from most campaign rhetoric. German politicians and voters now seem to tolerate Europe more than they embrace it. And Germans want to be Europe’s bookkeeper, not its paymaster.

Yet the biggest challenge posed by the German elections for it allies may be the political self-preoccupation that is likely to consume German elites and much of public opinion in the months ahead.

In choosing a Christian Democrat coalition government with the Free Democrats, German voters have opted for continuity and stability with a nod toward more market-friendly economic reform. For many of Germany’s friends the outcome could not have been better. But embedded in these German results are potential problems for all those who hope to work with the new German government.