Economic Policy Chaos in the German Government

Presidential or Parliamentary? The question of which system makes for a more effective and truly representative government has engaged political scientists for many years, but make no mistake: it also has some serious real-world consequences. Right now, with the Bush administration headed towards the history books stained by torture, illegal wiretapping, Katrina, Iraq, financial collapse, a corrupt Dept. of Justice, etc., etc., the presidential model is most assuredly under some disfavor. (Oh, and the presidential system also results in excruciatingly-long lame-duck periods waiting for the new chief executive to take power that are really inconsistent with the speed of events in the modern day. See this recent New York Times article for a solution to that that was contemplated in the past, but which Bush has nowhere near the intelligence nor love-of-country to implement now.) But a recent article in the authoritative German daily Die Welt by Jan Dams (Financial crisis: Glos provokes Merkel and Steinbrück) reminds us of many of the defects of the parliamentary system, especially during economically perilous times.

As it accounts for about one-fifth of the EU economy and is its most-populous country, Germany naturally has a leading role to play in any European response to the gathering economic storm-clouds. Unfortunately, the current make-up of its government at the federal level makes it hard for it to get its act together even in the best of circumstances: it’s a so-called “grand coalition,” i.e. a governing coalition between the main parties of the Left (SPD) and the Right (CDU), with the CDU’s “partner party,” the Bavaria-based CSU, thrown in as a third party for good measure. In other words, political organizations which are supposed to have diametrically-opposite governing philosophies nevertheless find themselves – actually, by their own mutual agreement, since this usually is a product of the past election results allowing no other combination of parties – stuck together forming a government in which the normal goal of doing well for the country has added to it various motivations involving making other parts of your government look bad, in preparation for the next round of elections.

For Germany those national-level elections are coming around next year, and this clumsy arrangement has already resulted in Bundeskanzlerin Angela Merkel’s very own Minister of Foreign Affairs, Frank-Walter Steinmeier, becoming the announced candidate-for-Chancellor of the SPD. You think there might be some awkwardness in Barack Obama making Hillary Clinton his Secretary of State because of the bitter primary campaigns they waged against each other? Well, just imagine instead that she was his Secretary of State and at the same time was announced to be his main Republican opponent in the next presidential election! Then you would have an analogous situation to what is happening now in Germany.

Under these circumstances, then, it’s understandable how government policy can become somewhat muddled. According to Jan Dams in his article, though, that is not even the half of it. Here is his lede: “Sixteen voices, sixteen opinions: The grand coalition has no common plan about how to fight the financial crisis. Even party-boundaries play no role anymore in the discussion.” Let’s list here what he reports as to what the various players think ought to be done – if anything:

We’ll start with Angela Merkel herself, of course, at the very top of the pyramid. She is CDU, in fact the head of the party, but somehow she finds herself marching in virtual lock-step with her Finance Minister, Peer Steinbrück, who is head of the SPD. Their position is clear: Now is not the time to be panicked into any massive public-spending and/or tax-cutting measures, when there is no way to be sure that they will have any more effect than increasing the national debt. (Steinbrück lays out his non-conventional views in further detail, and in English, in this interesting Newsweek interview.)
On the other hand there is Michael Glos, who is of the other right-wing party, the CSU, but who more importantly is the Minister for Economy and Technology. Recently declaring that “We must, in this difficult phase, strengthen purchasing-power,” he recently put forth, together with some other CSU colleagues, a tax-relief plan involving a higher standard deduction as well as a “flatter” structure to the German income tax, which together would bring €25 billion more to German taxpayers’ pocketbooks – at the expense of the federal budget, of course.
More generally, Merkel faces discontent within her own CDU party rank-and-file, which also is pushing for some sort of tax-relief, preferably before next year’s elections – for the obvious political reasons.
Steinbrück’s SPD is also in rebellion on this front – although, being the SPD, the party’s members favor economic stimulus in the form of infrastructure investment and targeted aid for the poor. (Tax cuts, you see, tend most to favor those who pay the most taxes, who in general are not the SPD constituency.)
Frank-Walter Steinmeier, the SPD’s standard-bearer in next year’s elections, has come out in favor of close economic coordination with the other EU states, to the point of agreeing with them together on some Europe-wide plan – something that, Dams reports, particularly sticks in the craw of the Merkel/Steinbrück team at the head of the government.
And then, since we’ve already discussed the heads of the CDU (Merkel) and SPD (Steinbrück, or maybe Steinmeier), let’s bring up the head of the CSU, Horst Seehofer, who has brought forth a four-point economic recovery plan: more infrastructure investment, tax-relief, help for the financial markets, and accelerated depreciation law (that’s Investitionsbeschleunigungsgesetz in German, if you were wondering).
Whoops, let me sneak in here one more: Annette Schavan, who is CDU (but, again, party affiliation doesn’t seem to mean much anymore in this context) and, more importantly, is Minister for Education. She thinks the thing to do is to spend more money on the schools and universities.

So it’s a mess. The policy output that has resulted so far is “do nothing,”* both because doing nothing always has at least the weight of inertia behind it, and because that’s what the most powerful figures (Merkel and Minister of Finance Steinbrück) want. Maybe they’re correct – maybe it’s a courageous and accurate thing to refuse these days to be panicked into spending tremendous amounts of money, although if there was any real result to that “G20” summit which lame-duck President Bush hosted in Washington last November 15, it was supposed to be an agreement that the participating countries (Germany was certainly one) would each implement their own fiscal-stimulus measures. And a lot of people – including the recent Nobel-Prize-winning Paul Krugman – are mighty upset that Germany is refusing to take the leading role in the European response to the economic emergency that it alone has the power to take.

The way things look from Jan Dams’ article, nothing less than that federal election next year is required to finally clear the air in the policy realm (if it even does that; after all, the last German federal election, which produced this grand coalition, did not). And if some serious outlays from the German budget are truly needed to avert economic catastrophe, for Germany itself, for Europe, maybe for the world, then that will turn out to be even worse a delay than the two-and-a-half months of waiting for Obama.

* OK, it’s not like the German government intends to do “nothing.” It looks like it is committed to spending an extra €10 billion, over what was originally budgeted, for infrastructure and the like over the next two years – this in a country with a GDP of €2.5 trillion! Many consider this essentially “nothing,” including Krugman. But please pardon the poetic license. Let me also note here that I was incorrect in my previous post when I listed Germany as having already enacted its own national fiscal stimulus plan.