Monday 10 December 2018

What four more years of Angela Merkel could mean for Ireland

Germans go to the polls in four weeks. Their decision will have major implications for Ireland

Leading player: Angela Merkel at a computer games fair in Cologne this week. The German Chancellor is likely to be re-elected in the general election on September 24, a victory which could have a significant impact on Ireland's position within the EU Photo: AP Photo/Martin Meissner
Leading player: Angela Merkel at a computer games fair in Cologne this week. The German Chancellor is likely to be re-elected in the general election on September 24, a victory which could have a significant impact on Ireland's position within the EU Photo: AP Photo/Martin Meissner
Dan O'Brien

Dan O'Brien

While every happening in Washington DC is reported on in great detail in the media, far too little attention is being paid to Berlin. Germany is entering the final straight of its general election campaign. That country is the most powerful constituent part of a quasi-federation of which Ireland forms a part. What happens in Germany matters for every man, woman and child in this country.

Angela Merkel is all but certain to win a fourth term as Chancellor in four weeks' time. Having won the top job in German and European politics in 2005, she is set to remain in office into the next decade. The conservative Christian Democrat leader has played a significant role in Germany's rise to become democratic Europe's preponderant state.

Although somewhat over rated - she has enjoyed all of the political gain and suffered none of the pain from her predecessor's bold economic reforms implemented in the first half of the last decade - Mrs Merkel towers above western Europe's other leaders. Some of that is by dint of longevity - she is by far the longest serving leader of an EU country is now on her fourth Taoiseach - but it is mostly to do with her country's natural power and her own abilities and skills.

Domestically, she is a motherly figure who gets few backs up. Her cautious and deliberative approach means she rarely makes unforced errors.

On the international stage, those who have seen her in action are always impressed by her meticulous preparation and grasp of detail. The fact that she dominates the politics of her own country and her own party gives her additional clout when dealing with foreign leaders.

Another factor in the rise of Germany since the euro crisis broke out in 2010 has been France's unusual lack of assertiveness - relative economic weakness vis-a-vis Germany and a declinist mentality have paralysed the French elite, although this may be changing with the victory of Emmanuel Macron and his party in presidential and parliamentary elections a few months ago, more of which anon.

The British people's decision to reduce their country's influence in the world by withdrawing from the EU is further consolidating German power. And it is on this issue of Brexit and future EU-UK relations that the position of Berlin will immediately impact on Ireland.

Pro-Brexit advocates in Britain used to claim that Europe would give them whatever access to the EU market they wanted because it was in Europe's own interests, often citing the one million cars Germany sells to the UK annually as a reason Berlin would want to maintain tariff-free access to the British market. But, as with many aspects of Brexit, they miscalculated. Mrs Merkel has explicitly said that the country's strategic interests - an EU that is not undermined by Britain having a best-of-both-worlds Brexit - will take precedence over commercial interests.

The reason for the miscalculation was a poor understanding of economics. Germany's exports to Britain are worth around 3.5pc of GDP. While this is not insignificant, even a large fall would not be a game-changer for the German economy.

This is where the problems arise for Ireland. This economy's export dependence on the UK is five times greater than Germany's by the same measure.

Because Ireland's commercial interests with Britain are so big, they amount to a strategic interest. The different priorities given to relations with Britain by Germany and other continental countries is a fundamental problem for Ireland for which there is no ready solution.

Germany's position on Brexit is not expected to change regardless of which party or parties Mrs Merkel forms a coalition with after the election. That is less certain with regards two of the other big European issues which affect Ireland - defence and the governance structure around the euro.

Despite Mrs Merkel's sustained lead in the polls, with around 40pc of the electorate backing her, the shape of the next government is unclear. That is because the voting patterns in Germany are becoming increasingly fragmented, in line with trends in Ireland and many other countries. Polls have consistently suggested that a record six parties will be represented in Berlin's parliament after the election, up from four in the current parliament (as recently as the 1980s, Germany had two-and-a-half party system).

While Mrs Merkel's centre-right Christian Democrats have lost out as a result of more promiscuous voting, it is the centre-left Social Democrats that have really suffered. They now are supported by just one in four voters.

In their heyday in the post-war decades they won as much as 45pc of the vote. Now the junior partners in a coalition with Mrs Merkel, the best they can hope for is for the arrangement to be rolled over.

That will be for Mrs Merkel to decide. She will almost certainly have the option of changing partners. The small, liberal Free Democratic Party (FDP) has been her party's traditional partner of choice. If the numbers don't add up, she could bring in the Greens too.

On giving the EU a greater role in defence, the momentum behind which has grown considerably since Donald Trump's election as US president, a reformation of the current coalition could be expected to drive forward on the issue. A coalition with the FDP and the Greens might be less enthusiastic, as both have some reservations, albeit of very different kinds.

One way or the other, Ireland will become increasingly isolated as even the traditional neutrals - Finland and Sweden - advocate more EU cooperation on security issues.

Within the German political system, bigger differences exist on the future of the euro, as encapsulated by proposals to create a European finance minister with a bigger Brussels budget, some capacity to issue Eurobonds and stronger powers to make governments stick to the plethora of budget management rules.

The Social Democrats and Greens are broadly favourable to the proposals, while the FDP is more sceptical, viewing any move in that direction as a means of channeling German taxpayers' money to more profligate countries. France's President Macron is pushing hard to move in this direction, and if he implements the sort of reforms German put in place in the early 2000s, it will be hard for Mrs Merkel to oppose it, regardless of who her coalition partners are. It hardly needs to said that the creation of a European finance minister would have very significant implications for Ireland.

German motor is no longer so well tuned

The German economy is 12pc bigger than it was 10 years ago. Over the previous decade, one in which it was routinely labelled the "sick man of Europe", it grew by 18pc. The lower growth illustrates that much of the gushing talk about the German economy concerns relative performance: most other European economies were hit harder by the Great Recession and have fared even worse. More recently, while German GDP growth has been healthy, it has been below 2pc a year.

One reason lies in demographics. The population topped out shortly after the turn of the century and started falling a decade ago. It has risen again as a result of a big increase in refugees and immigrants, but that is unlikely to be repeated.

Germany's fiscal restraint has had a big impact on infrastructure. In nearly every year since the early 2000s, public investment spending has not matched depreciation. That can only mean a decline in the quality and reliability of infrastructure.

The former communist east has not closed the gap with the west, despite massive infusions of cash. That has led to high levels of outward migration, which further saps vitality.

A wider weakness is modern services. The German economy has plenty of strengths, but it is neither invulnerable nor immune from normal business cycle downturns.

Dan O'Brien was the lead analyst on Germany at the Economist Intelligence Unit for five years.

Sunday Independent

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