First Look: The German view of the EU: Schaeuble Is Protecting His Seat on Merkel’s Right

“Debt a brake on the further development of the economy, on the further development of jobs, on increased productivity”.

These are the words uttered by Wolfgang Schaeuble, German Finance Minister and senior member of Angela Merkel’s Christian Democratic Union (CDU) party, at a conference of his conservative MPs on 1 March 2018. He was obviously making reference to the upcoming European parliamentary elections, in which anti-European forces could win, and he was seeking to portray the Greens, who are currently in a coalition in the federal government, as an undesirably protectionist force.

Within Germany, which remains the group’s main market, the Greens are at present well-positioned. They are running ahead of the CDU and their partners in the federal government, the Social Democrats (SPD). An opinion poll by the German Society for Economic Research in January 2018 suggested that support for the Greens was 22%, ten points ahead of the SPD and more than twice that of the CDU, with 14%.

In policy, the Greens are unapologetically protectionist and often more neo-nazi than the other mainstream political parties. Against the EU constitution, for example, they called for the expulsion of all foreign nationals not entitled to reside in the member states. Now the Greens have adopted a brand new party slogan: “Exiting the EU, while staying in the euro.” They have been open in their rejection of moves towards greater collaboration and integration in the EU; and they call for unconditionally renewed “mutual access” for German and EU citizens when travelling between the two. A Syriza-type leftist successor to the Greek government is evidently in store.

This is not the way for Germany to look for a renaissance in productivity, since high levels of administrative constraints, the high level of personal consumption and wages relative to household incomes, the advanced capital goods industry as well as high levels of investment in physical capital have pushed the country’s performance down in recent years. This leaves Germany at the bottom of the league tables among its major competitors.

The economists hardly think Germany should be concerned that French President Emmanuel Macron has not yet fulfilled most of his promises. The failure to deliver new fiscal measures (e.g. legislation requiring corporate social responsibility or tax reform) has left the country in a state of economic inaction.

The profligacy of the last decade, especially in the spending area, has given the country too high a national debt, according to the economists. This has impeded Germany’s room for manoeuvre and the Finance Minister’s aim to reduce government debt as a percentage of GDP.

The economists see the government’s budget financing policies as mildly favouring inflation. They are also less worried than most of the politicians about the effect of the price increases on the European and the German economies.

The Germans, however, know that their high degree of exchange rate uncertainty could lead to even higher levels of unemployment than the general unemployment rate which, at 6.9%, is at a 24-year low. In the past, as it did in the 1990s, German companies have moved abroad, opening new and higher value-added markets on the continent. The well-functioning European single market, which continues to attract German businesses with low transaction costs, is what has kept the unemployment rate at the present level.

The trade deficit is currently at record levels, amounting to €106 billion in 2017. It has continued to grow in the first six months of 2018. The Trump administration has asked the European Union for a settlement of the European trade deficit, although, in the absence of clear signs that tariffs are to be reduced in return, Germany may find this politically rather hard to deliver.

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