The Brief – Germany’s three-party problem

The budget crisis that shook Germany’s three-way ruling coalition only weeks before its second anniversary has painfully exposed the contradictions between the disparate government partners.

When the three-party coalition of Social Democrats (S&D), Greens, and liberal FDP (Renew) came to power, the one term they could all agree on was ‘progress’.

Progress, as opposed to the 16 years under Angela Merkel (CDU/EPP), which many Germans had filed away under ‘stability’, was the glue that brought the three unequal partners together. 

However, as time passed and several crises started to shake the coalition’s proclaimed objectives, this glue became increasingly brittle while infighting grew.

With a ruling by the constitutional court three weeks ago that struck €60 billion off the governing coalition’s long-term budget, the differences are now clearer than ever as the government ponders the hard truth that it won’t be able to achieve all its objectives – or at least, not at the same time.

Chancellor Olaf Scholz’s Social Democrats had one major objective: To shake off the trauma that has haunted the party since then-chancellor Gerhard Schröder cut welfare spending to fight unemployment back in 2005.

They now promised to secure the pensions level, despite the demographic change that will see millions of baby boomers leaving the job market over the next few years, and replace the hated ‘Hartz 4’ unemployment system introduced by Schröder with a more pleasant scheme called ‘Citizen’s benefit’.

The Greens, meanwhile, fought against their anti-business image by handing out several generous subsidies in the hope of helping Germany’s large industries replace carbon-intensive production sites with clean ones instead of driving them out of the country.

For the party, this is crucial to demonstrate that the pace and style of the green transition they want, prioritising social equity over economic efficiency, was possible without major hardship.

What the plans of the Greens and the SPD have in common is that they both require a lot of money to implement, which is where the liberal finance minister and self-proclaimed fiscal hawk, Christian Lindner, comes in.

His FDP was the hardest to convince to join the club. Lindner, the party leader, had already blown up coalition talks once, with the claim that “it’s better not to govern than to govern in the wrong way”, which had set the bar high.

The liberals, too, were ultimately convinced with expensive gifts, such as the idea of using money from the federal budget to start buying stocks to complement the pension system with a capital-funded pillar.

More importantly, however, they could present themselves as those preventing the two left-leaning parties from raising taxes or going into excessive debt.

Thus, when the Constitutional Court’s ruling strengthened the constitutional ‘debt brake’ that limits government spending, the liberals initially thought it would play into their hands.

Lindner went around and said where he thinks cuts are necessary: Social spending, foreign aid, and industrial subsidies.

Usually, Lindner has the upper hand in such negotiations. As confirmed by political scientists, within coalition governments, the party that differs the most from the others is most likely to get its way, as it is the hardest to convince to stay in the coalition.

But this time, his demands went to the very core of his coalition partners’ identities, making it very unlikely that they should swallow it without getting something in return.

Where to now? The most likely scenario is a deal where coalition partners scramble together the €60 billion with a few cuts here and there, but also by using another exemption to the ‘debt brake’ in 2024, arguing that the impact of the crises that made them suspend the debt brake in the previous years is still being felt.

However, for Lindner, such a decision would be a very bitter pill. Once again, an old slogan of his – “Better new elections than new debt”, with which he campaigned in a state-level election in North-Rhine Westphalia in 2012 – has come back to haunt him.

With his party close to the 5% threshold that could lock them out of parliament, he seems unlikely to embark on a gamble like this again.

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The Roundup

The European Parliament’s Economic Affairs Committee adopted the annual competition policy report with a broad majority on Monday, suggesting expanding the reach of the EU’s Big Tech law to the cloud and Artificial Intelligence sectors.

German Chancellor Olaf Scholz and Brazilian President Luiz Inácio Lula da Silva committed to concluding the EU-Mercosur trade agreement in Berlin on Monday, despite the blowback the deal received from France and Argentina.

The EU executive gave the green light to public spending up to €1.2 billion by seven member states for their common research interest project on interoperable cloud and edge computing for multi-providers.

The European Parliament and the Council of EU member states reached a provisional deal on Monday on new ‘ecodesign’ rules to make products easier to repair and recycle while fighting planned obsolescence and banning the destruction of unsold textiles.

Re-issuing a cancer patient’s unused medication to a fellow patient can save up to €50 million annually in the Netherlands, a study conducted at four Dutch hospitals and published in JAMA Oncology has found. However, the EU-wide Falsified Medicines Directive is preventing a wider roll-out of this environment- and cost-friendly programme.

The European Union has set a goal to increase the production and utilisation of renewable hydrogen in the fertiliser industry but like other sectors, there is no quick fix for achieving climate neutrality and the key to advancing decarbonisation is to use a combination of low-carbon technologies.

Czech Parliament has approved a law amendment setting out new obligations for suppliers and distributors of medicines, pharmacies and state authorities in what the Health Ministry hopes will tackle medicine shortages, but the pharmaceutical sector is unconvinced.

A socially equitable green transition ought to rely heavily on technological innovation, American tech mogul and philanthropist Bill Gates told a high-level ‘Growth and Climate’ conference in Paris on Tuesday.

European recyclers have raised concerns over plans to hand out free CO2 allowances to steelmakers, saying the methodology considered by Brussels puts recycled steel scrap at a disadvantage compared to primary steel made from iron ore, which is more polluting.

One of the larger advertisers in Bulgaria announced that it would stop “cooperation” with a news website singled out as “problematic” ahead of the publication on Tuesday of a report according to which major global brands are sending $2.6 billion to misinformation websites each year.

A network comprised of six hospitals located across Belgium is aiming to carry out age-specific care dedicated to adolescents and young adults (AYAs) diagnosed with cancer, that is young adults between the ages of 16 and 35 years.

Six Ukrainian children will be returned to Ukraine from Russia under a deal brokered by Qatar, a Qatari official said on Tuesday (5 December), with a source involved in organising the returns saying they had been staying with relatives in Russia or Russian-occupied territory.

Ukraine President Volodomyr Zelenskyy and top aides to US President Joe Biden will make their case to US senators on Tuesday about why a fresh infusion of military assistance is needed to help Ukraine repel Russian invaders.

Don’t miss this week’s Transport Brief: Carmakers call for relaxation of regulation ‘tsunami’.

Look out for…

• COP28 ongoing until 12 December.
• Agriculture Commissioner Janusz Wojciechowski delivers speech at the 2023 EU Agricultural Outlook Conference in Brussels Wednesday
• EU-China summit in Beijing Thursday.
• Eurogroup meets in Brussels Thursday.
• Competitiveness Council (Internal market and industry) meets in Brussels Thursday.