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After Merkel, Germany needs a modernising government

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As her enduring popularity attests, Germans are grateful to Angela Merkel, their outgoing chancellor, for steering them through turbulent economic and geopolitical times. The stability and prosperity that she safeguarded with methodical leadership made Germany the envy of the world and Europe’s predominant power. Germans from across the political spectrum pay tribute to her unflappable crisis management.

Many of her most consequential decisions — an accelerated phaseout of nuclear power, keeping Greece inside the euro, endorsing the exceptional measures by the European Central Bank to keep the single currency together, opening German doors during the migrant crisis and support for a pandemic EU recovery fund financed by common borrowing — were forced upon her by the necessity of the moment. Mostly, she made the right calls. She was also adept at judging when conservative public opinion was willing to embrace an abrupt change.

Where Merkel fell short was in the incremental business of keeping Germany up with the times. Many of the vulnerabilities that accumulated in her 16 years of power have recently come to the fore: digital backwardness; a creaking education system; ineffective, overlapping layers of government; and a lack of ambition for decarbonising Europe’s industrial powerhouse. All need to be urgently addressed.

If Merkel were standing again in Sunday’s federal election, she would win hands down. Voters are less impressed with her would-be successors. The one who comes closest to emulating her unflashy, sure-footed style, the Social Democrat candidate Olaf Scholz, has made his personality an electoral asset. Germans do not appear to want a wrenching change of direction; they quickly cooled on the idea of making Annalena Baerbock Germany’s first Green chancellor. The country is probably heading for its first three-way coalition, an innovation in itself, but the effect will be to restrict big policy turns.

Germans may crave a Merkel substitute, but they also want their next government to fix the problems she is leaving behind. Scholz has understood this better than his Christian Democrat rival, Armin Laschet, whose campaign has lacked energy and ideas. Laschet’s lack of gravitas has made the absence of fresh thinking from an exhausted CDU all the more glaring.

Common to many of Germany’s problems is a lack of investment. The overarching priority for the next government will be a hefty increase in public investment and more fiscal incentives for the private sector. Meeting EU targets for CO2 emissions by 2030 may require extra investment worth an additional 2 per cent of GDP each year. Germany’s poor connectivity and a lack of digital skills also require higher spending, not to mention its crumbling transport infrastructure.

Ideally, Germany’s political parties would agree to revise the constitutionally enshrined debt brake to allow for this once-in-a-generation investment effort. Resistance on the right makes it improbable. But there are ways around the debt limit, such as a special purpose investment vehicle or a more flexible interpretation of the rules. A move on that front could help reframe the debate about the EU’s fiscal rules, giving Berlin’s European partners the investment leeway they also need.

Counting on Germany to rebalance its economy, play a bigger role in European or global security, or risk a privileged commercial relationship by being more assertive towards China amounts to hope over expectation. But the next government will have to adjust to the world as it is. It will not be dramatic, but change is coming.


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