Posted by on September 23, 2017 12:35 am
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In Germany, unlike in recent French and Dutch elections, there is little risk that the government will include nationalist or Euroskeptic forces. The AfD likely will win a handful of seats in the Bundestag, but other parties for the most part will refuse to cooperate with it. Meanwhile, The Left will also struggle to find partners, though it could possibly become a member of a broad center-left alliance. But while the German election doesn’t pose the same threat to the stability of the eurozone as did the French or Dutch elections, the next German government’s composition will play an important role in determining the future of the European Union.

Over the past decade, a combination of economic crises and strong nationalist sentiments made institutional reform in the European Union impossible. Now that most member states are growing again, and as the 2017 electoral season is reaching its end, the political environment for reform has become more favorable. Furthermore, last year’s Brexit referendum convinced most EU members and institutions that reforms are necessary to revitalize the bloc after years of shocks.

As the biggest economy in Europe, Germany will play a significant role in EU reform negotiations. Thus, the ideological composition of its government will be a crucial piece of the reform puzzle. In recent weeks, France, Italy and Spain each have made reform proposals, including plans to increase blocwide investment and introduce risk-sharing measures in the eurozone. Italy and Spain have even proposed issuing debt that is jointly backed by all the members of the eurozone. Meanwhile, France said that it will hold off on additional proposals for the eurozone until after the German election, so that Paris and Berlin can discuss the plans together.

Whoever has control in Germany’s parliament will influence the negotiations and eventual compromises made between the northern and southern blocs of the eurozone. If the election results in a center-right coalition led by the CDU, the government would probably take a skeptical view of plans presented by Southern Europe. A center-left coalition led by the SDP, meanwhile, would be more open to them. But regardless of who is in charge, Germany and other Northern European countries will be reluctant to share risk with their Southern European counterparts. Even though Berlin is not entirely opposed to Southern Europe’s proposals, it will almost certainly request tighter control of fiscal policies in the eurozone — a concession that Southern European countries will resist.

The makeup of the next coalition in Berlin will also influence debates on a variety of other EU issues. For example, Germany falls well short of NATO’s goal that its members spend at least 2 percent of gross domestic product on defense, and the CDU is more willing to increase military spending than the SPD. When it comes to Brexit, most German parties align on a few things: they are in favor of reaching a deal with the United Kingdom, and they agree that the bloc’s future relationship with London should include fewer benefits than EU membership would have granted. However, London would prefer a CDU-led government to one led by the SPD, given Schulz’s background as former EU Parliament president and his strong defense of the bloc and its institutions.

And it’s not just the two big parties that will affect continental affairs. Depending on the Cabinet positions they are given, junior coalition partners could also shape some of Berlin’s decisions. The FDP, for example, would probably resist the kinds of protectionist moves that France is proposing, while The Left would push for strong government spending and higher taxes for corporations. These parties’ abilities to shape policy will of course be limited, but they should not be completely disregarded.

Germany Tackles a Challenging Future

Beyond the larger concerns of the European Union, Germany is also facing a number of long-term domestic challenges. And while discussion of those issues has been largely absent in the electoral campaign so far, the country will eventually to have reckon with them.

The German economy has grown at a decent pace in recent years, and unemployment is at record lows. However, as a member of the eurozone, Germany could still be harmed by developments in other countries. For example, the bailout program that helped Greece stabilize its economy is set to expire in mid-2018, and Athens likely will request help to reduce the burden of its sovereign debt. This idea is controversial in Germany, and the FDP has even suggested that Greece leave the eurozone in exchange for debt relief. The Italian general election in early 2018 offers further challenges. There is a real chance that Italian votes will put a euroskeptic government in power, which would create a major roadblock to eurozone reforms.

Germany’s stability could take also hits for reasons more within its control, as the country’s export-driven economy faces pressure from its main trade partners. Southern European countries want Berlin to increase domestic spending to boost imports, and the United States has repeatedly criticized Germany’s massive trade surplus. A more protectionist stance by the United States, Germany’s main trade partner outside the eurozone, could damage German exports. Moreover, Germany’s flagship industry — its automotive sector — may need to readapt its business model as it faces competition from new technologies and foreign vehicle manufacturers as well as the aftermath of the “dieselgate” emissions test-rigging scandal.

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