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Wednesday, 27 November 2013

Germany will be governed by a large coalition, consisting of CDU/CSU and SPD. Chancellor Angela Merkel acts as 'Dr. No', in an assumed 'N.I.M.B.Y.-cabinet'.

if you are ever, in a situation,
without enough time for contemplation,
all of your friends go in the same way,
you feel kind of trapped, you don't know what to say,
just say no, 'cause better save than sorry,

Although the grassroots of the social-democrat SPD could still spoil the party, everybody assumes that the deal is done for Germany: the country will get a large government coalition, consisting of the christian-democrat CDU/CSU, led by Angela Merkel, and the SPD of Sigmar Gabriel.

BNR News Radio reported the following news on the new German government:

German chancellor Angela Merkel, Horst Seehofer (CSU) and Sigmar Gabriel (SPD) have presented their government agreement, with the motto “Designing the future of Germany”.

After marathon negotiations of 17 hours, the party leaders of CDU, CSU and SPD agreed upon a government agreement this morning. However, this agreement must be approved by almost half a million SPD party-members. 

“This could pose a problem, as this agreement has a clear christian-democrat signature”, according to secretary-general Dobrindt of CSU.

Merkel stated in a formal comment that a large coalition has been formed “for the great tasks that lie ahead of German politics”. She emphasized the importance of solid government financing.

SPD-leader Sigmar Gabriel started his speech with a plea for the “stabilization” of the EU and the Euro. According to him, a great idea is under jeopardy, due to the rightwing-populists. Important is to maintain the confidence in Europe.

Germany will not enter into new debt, from 2015 and further. Besides that, there will be no new taxes. The Social-democrats had been in favor of more government spending, in order to create additional jobs, but that desire has not been rewarded.

Nevertheless, the fondest wish of the SPD - to establish a minimum wage of €8.50 per hour - has finally been rewarded. However, during the transitional periode (until 2017), it is yet possible for the employers to negotiate a lower payment within the collective labour agreements. The CDU/CSU feared that otherwise many jobs would be lost, as a consequence of this minimum wage.

From 2017 and further, the Germans will receive a “social benefit for the elderly”: this enables people, who could only pay little contributions during their working life, to receive a minimal amount of €850 per month anyway.

Negative for foreigners is the introduction of a German highway toll system, based on a similar toll vignette, as in Switzerland and Germany.

No names of future ministers have been mentioned yet. However, the CDU will get five ministers (besides the chancellors position), the SPD six and the CSU will get three ministers in the future cabinet. The plan is that the Bundestag (German parliament) votes Merkel as third time chancellor in the week before Christmas.

I must admit: I was wrong with my prediction that Germany would get a blue/green cabinet, consisting of CDU/CSU and the German Green Party. 

Where I was right, however, was my prediction that the negotiations would be tough and would take quite some time:

However, the SPD has a lot to lose in such a coalition:
the party will have to make a lot of impopular decisions, for which it is undoubtledly blamed at the following elections. The real advantages for the SPD are therefore not certain at all.
besides that, Steinbrück might be forced to act as a stooge for Angela Merkel: making at least half of the jokes, but never receiving the applause for it.

Is this the reason that the SPD used today (and probably the rest of the week) to ‘lick its wounds’, before taking a decision on a possible red/blue coalition in Germany?

Although this CDU/CSU/SPD coalition is clearly the favorite possibility of many Germany-watchers, I am not so convinced that such a coalition will indeed emerge, due to the aforementioned reasons.

Well, the Germans of the CDU/CSU and SPD “did it” anyway and formed a new cabinet. 

In my opinion, this will indeed be the future cabinet of Germany: I suspect that the sense of responsibility of the SPD grassroots will vanquish their feelings of disappointment and resentment against the CDU/CSU combination. This will happen, in spite of the Prime Minister’s bonus that will undoubtedly be rewarded to Angela Merkel again.

The following snippet is from the article mentioned behind the previous hyperlink:

This is the consequence of a phenomenon, called the Prime-Minister’s bonus: where the largest party in a two-party coalition (the party, which delivers the PM) often receives the credits for the things that went right during the previous government stint, the smallest coalition party is often blamed for everything that went wrong in the coalition. Especially, by the people who voted for the latter during the last elections.

In other words: the smallest party is punished for having been smaller and for not having as much influence as the largest party. This happened to the FDP during the 2013 elections and to the SPD in 2009 (to 23% from 34.2% in 2005). 

This new cabinet might be a very stable one; the Germans don’t have a tradition of large political arguments and devastating cabinet crises, like in The Netherlands and Belgium.

Anyway, the $1000,000 question is: will it be a cabinet that is good for Germany and Europe?! I have serious doubts, with Merkel at the helm.

Merkel’s conservatism and lack of courage is one of the reasons that the Euro-crisis took such a long time to solve; in reality the Euro-crisis has not even been solved  yet, only nobody whines about it anymore, at the moment.

Germany, irrespective whether it has been Angela Merkel, the Bundestag or the Federal Constitutional Court in Karlsruhe, has “sabotaged” almost any attempt to save the Euro-zone and the Euro, spur the European economies and solve the European banking problem. 

Therefore, I hold Germany (together with The Netherlands) responsible for a large share of the financial and economic misery in especially the PIIGS countries over the last five years.

This makes the red and bold statement of SPD's Sigmar Gabriel about "maintaining confidence in Europe" so peculiar: perhaps Germany's past actions maintained the German confidence in Europe, but it put the confidence of many, many other Europeans under jeopardy.

And will this ‘German N.I.M.B.Y. (“not in my back yard”) politics’ change in the coming years?!

The distinguished and savvy ING economist Carsten Brzeski is very clear about this, in an interview with Petra Grijzen of BNR News Radio:

Carsten Brzeski: First and foremost, there were a lot of "No's" in the formal statement of both coalition partners. They know best what Germany is NOT going to do: 
  • "No" against the European Transfer Union
  • "No" against a common deposit guarantee system.
  • "No" against a completion of the European Bank Union
  • "No" against the mutualization of [government and bank] debt among the European society
  • A remaining "No" against Eurobonds 

There were indeed a lot of "no's", but the coalition didn't make clear at all what Germany stands for in the future. 

I'm afraid that the German policy will largely be the same as now. This means muddling through the crisis in Europe, instead of solving it.

Petra Grijzen: What does that mean for us in Europe?

Carsten:  What we see as an interesting development, is that the German government will retreat from the current plans for the European banking Union. One of the most important parts of this banking union plan was the following proposition: in 2014, the ECB would be allowed to rescue banks on their own initiative with money from the European emergency fund, without asking permission from the European governments in anticipation.

The new German government states, however, that this ECB plan will only be allowed by Germany, when a European banking settlement mechanism for defaulting banks is established. Such a European banking settlement mechanism is not established yet and it might at least take two or three years for the EU to develop it.

A banking union that could break the vicious circle between banks and governments is something that we will not get so easily, I'm afraid.

Petra: What does that mean for the banks?! The biggest problem in the EU is the weak banking industry. What can we expect?! The next crisis, perhaps?!

Petra Grijzen of BNR News Radio
Picture copyright of: Ernst Labruyère
Click to enlarge
Carsten: This means that the lionshare of responsibility will remain with the European Central Bank. The ECB has the responsibility to supply the financial system with sufficient liquidity, without the European governments backing it up.

And when we look at the stress tests results for the European banks next year and we see then that new banks will have to be rescued, this will be again the task of national governments. Especially, in those cases when the money of shareholders and bondholders does not suffice to let the bank properly default. This development is exactly what we wanted to prevent with a banking union.

I don't think that this will lead to a derailment of the financial industry, but it means that what we wanted so badly - an integral and fully operational banking union for the EU - will be a thing of the future.

Summarized: Angela Merkel will be "Frau Dr. No" in a German N.I.M.B.Y-cabinet, which rather lets the Euro-crisis fester on for another 5-odd years, than to take a few decisions that might hurt the Germans a little, financially.

The same Germans, by the way, who saved about €40+ billion in national interest payments, due to the extremely low interest rates for Bunds, currently. It would be funny, weren’t it so sickening…

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