Global News Journal

from Commentaries:

Germans vote for change; will they get it?

Germans have voted for change. A centre-right government with a clear parliamentary majority will replace the ungainly grand coalition of conservatives and Social Democrats that ran Europe's biggest economy for the last four years.

This should mean an end to "steady as she goes" lowest common denominator policies, and at least some reform of the country's tax and welfare system. The liberal Free Democrats, who recorded their best ever result with around 14.7 percent, will try to pull the new government towards tax cuts, health care reform, a reduction in welfare spending and a loosening of job protection in small business.

Conservative Chancellor Angela Merkel, a cautious centrist, made clear in her first post-election comments that she she would not allow a radical lurch to the right. She promised to be the "chancellor of all Germans" -- old and young, entrepreneurs and workers -- and said the conseravtives would be sufficiently dominant in the new coalition to prevail "in questions that affect social balance".

The new government faces tough economic challenges in what is bound to be a more polarised political atmosphere, with the Social Democrats in opposition. The economy is expected to contract by at least 5 percent this year, and export-led growth is likely to return only slowly. Unemployment is set to explode in the coming months as short-time work schemes run out. The budget deficit is set to top 6 percent of gross domestic product next year, more than twice the EU limit. So 2010 will be an extremely difficult year. But there are some problems that are even more urgent.

The first big choice involves Germany's ailing banks. Outgoing Finance Minister Peer Steinbrueck admitted last week that the public-owned regional Landesbanks "continue to pose an enormous systemic risk to our market". The outgoing parliament passed a virtually useless "bad bank" law meant to encourage stricken financial institutions to put their toxic assets into state-guaranteed special purpose vehicles. The banks have so far spurned the system because it leaves the risk of losses with them rather than with the taxpayer.

Merkel and her new partners need to amend the law so that the state takes more of the risk, otherwise Germany faces a future of "zombie" banks that are too burdened with liabilities to lend to the real economy. That won't be popular, with the left bound to claim that taxpayers are being forced to bail out wealthy bankers.

Fixing the banks is more urgent than cutting taxes or curbing public spending to revive the economy. That also means merging the Landesbanks, shrinking their activities and privatising as much as possible. The Germans must also be ready to allow healthy foreign banks to buy up sickly German ones. That is the logic of the European single market, to which a centre-right government is likely to be more committed.

Is “baron from Bavaria” a liability for Merkel?

Germany’s 37-year-old economy minister, Karl-Theodor zu Guttenberg, could become a liability for Chancellor Angela Merkel in September’s election thanks to his open criticism of the government’s 11th-hour rescue of carmaker Opel.

Guttenberg, a rising star in Merkel’s conservative camp, had argued for an Opel insolvency in the days preceding the deal.

He astonished reporters when he expressed objections to the agreement just minutes after the announcement in the early hours of Saturday that German taxpayers would help tide over Opel’s operations until General Motors concluded an agreement to sell Opel to a group led by Canadian supplier Magna.

“I want to say that, in a very difficult discussion process … I personally came to a different view of the risks,” said Guttenberg, a Bavarian who has been economy minister for less than four months. There are no Opel plants in Bavaria.

There are strong rumours he threatened to resign after his opposition to the deal was ignored and at the weekend Guttenberg, seen by some as a possible future chancellor, continued his attack.

“The threat is the state can be blackmailed if it is overly generous with help even once,” the media-friendly minister told the Welt am Sonntag newspaper in remarks that have given ammunition to his political foes.

Guttenberg’s comments have gone down well with some in his own conservative camp and could even strengthen his position with them in the long run, especially if he is proved right and the deal turns out badly. 

A return of “ignore Germany” under Obama?

It’s not quite as bad as it was back in 2003 when Gerhard Schroeder publicly chastised George W. Bush for invading Iraq and Condi Rice introduced a new policy in the White House called ”ignore Germany” (France was to be punished and Russia forgiven for their opposition to the war).

But relations between Berlin and Washington are probably as poor as they’ve been since Angela Merkel replaced Schroeder in 2005 and set Germany on a course of reconciliation with the United States.

After becoming accustomed to dinners in the White House, barbecues and back-rubs with Bush in his Europe-friendly second term, Merkel and her advisers in Berlin are agonising over a series of slights (perceived or real) from Obama since he came to office in January. 

First came the message from Washington that Obama might not continue the regular videoconferences Merkel held with Bush. In the end the White House came around, but it took two months to set one up.

Berlin also got the cold shoulder when Merkel tried to arrange a trip to Washington ahead of a G20 meeting in London at the start of April. Messages from Berlin with proposed dates went unanswered for days until Merkel’s team abandoned the idea completely, an official close to her told me.

This week came the latest signal, at least from Berlin’s perspective, that the Obama team is not taking German concerns seriously. 

The rescue of Opel, the German unit of U.S. carmaker General Motors, has become the central theme of a slow-to-get-started German election campaign that pits Merkel against her Foreign Minister Frank-Walter Steinmeier. A misstep on Opel and Merkel’s bid for a second term could be doomed.