Summary

The post-Merkel era is set to kick off in Germany, as the ‘traffic light coalition’ of Social Democratic Party (SDP), the Greens, and the Free Democratic Party (FDP) have agreed to form a new government headed by the SDP’s Olaf Scholz.

Success was anything but assured given the wide variance in the parties’ ideological stances. The new government will seek to bridge the gap between the Greens’ environmental focus, the FDP’s free market orthodoxy, and the SDP’s redistributive social democracy – and all after 16 years of Angela Merkel’s Christian Democratic Union of Germany (CDU) dominating the highest levels of Germany politics.

 

Impact

The coalition agreement divides ministries as follows: SDP get the chancellorship and six other ministries (including the interior and defense ministries), the Greens get five (including the foreign and newly-created economy and climate protection ministries), and the FDP gets four (including the all-important finance ministry).

The resulting distribution projects for an interesting mix of old and new policies.

First and foremost, the new coalition government will be more vigilant on climate issues, as the environment is not just on the forefront of the minds of German voters, but is also an area of relative accord among the coalition partners – at least in theory. Germany’s coal phase-out deadline was moved up from 2038 to 2030 in a last-minute compromise in the negotiations; a carbon price floor of 60 euros per ton was agreed upon; and the target ratio for renewable generation was increased from 65% to 80% by 2030. However, the country’s overall emission target remained intact, aiming at a 65% reduction by 2030 (1990 levels). Moreover, the Greens gave some ground on approving new gas-fired plants intended to help ease the transition to renewable electricity generation.

The SDP rewarded its working-class base with a minimum wage hike from 9.60 to 12 euros an hour and new rental controls meant to dampen rising housing costs.

The FDP secured its number-one priority of the finance ministry, with FDP leader Christian Lindner set to become the new finance minister. FDP policy imperatives were also evident in the coalition agreement’s vow of fiscal prudence and, more specifically, the promise to re-impose constitutional bans on borrowing that were temporarily suspended during the COVID-19 pandemic. An FDP-controlled finance ministry will effectively pump the brakes on pandemic-era efforts to pool EU fiscal resources, and this is one area where the new coalition can be expected to closely mirror the Merkel legacy. Notably, the agreement described the EU pandemic recovery fund, which was a major victory for continentalists, as “an instrument limited in time and amount.”

Germany’s foreign policy is set to evolve from the Merkel era’s preoccupation with trade and investment. Both the SDP and Greens favor a more idealistic approach to foreign policy, one that advances human rights and democratic values. In the context of the EU, this will resonate in the European Commission’s (EC) fight against states such as Poland and Hungary, which are accused of backsliding on democratic norms. To this end, the coalition government specifically calls out the EC to use its punitive rule-of-law instruments and threaten non-compliant countries with non-payment of pandemic-related funds. Such wording represents a significant departure from the later policies of the Merkel government, which tended to downplay the East-West division and seek compromise above all.

The coalition agreement broaches other contentious EU subjects, including the possibility of reforming EU treaties to transform the EU into something resembling a federal state – a venture that would almost surely be stillborn from a Hungary/Poland veto, or, if not, an eventual failed national referendum.  Moreover, the agreement calls for a qualified majority voting mechanism on foreign policy which, if implemented, would eliminate the need to reach a consensus in any and all EU foreign policy decisions. In military affairs, the agreement calls for “increased cooperation between national armies of EU members willing to integrate, especially in training, capabilities, operations, and equipment.” And on the issue of migration: “a fundamental reform of the European asylum system.”

Taken together, the coalition’s EU policy would mark a radical departure from the Merkel era’s aversion for intra-EU conflict and its refusal to pursue reform paths that would result in a two-tier integration process. As a mission statement, the difference is stark; however, it’s worth keeping in mind that the actual implementation of such a laundry list of ambitious reforms is anything but assured.

The SDP/Greens zeal is also to be found in Germany’s other major global relations, notably China, whose bilateral relations should be governed by “partnership, competition, and system rivalry” (emphasis added). The most immediate consequence will be the likely death of the EU-China investment treaty that the Merkel government hammered out in its final act. But there’s other language in the agreement that will no doubt be of concern to the Chinese authorities; for example, promising to bring human rights issues back into Germany’s China policy, and backing greater participation by Taiwan in international organizations.

Forecast

Looking ahead, each party will have an incentive to make the new government work, and in doing so extricate their style of governance from the long shadow of the CDU. This imperative will be particularly pronounced for the SDP, which failed to carve out an identity for itself – at least in the voters’ eyes – over the course of several ‘Grand Coalitions’ helmed by Angela Merkel. That being said, the ideological differences between the three are very real, particularly between the FDP and the other two parties, and these differences could easily trigger the premature end of the coalition, which is the first of its kind as a tri-party national government. Regardless, with no shortage of divisive issues on the immediate horizon – Europe’s COVID-19 resurgence and how to respond to it chief among them – it stands to reason that the government will have to hit the ground running.