Germany looks to enter 2018 in the same shape that it will leave 2017, with its shaken-but-not-stirred chancellor at the helm—albeit of a caretaker government—and doing what she does best: “merkeln,” a verb coined by Germans to describe the kind of plodding, wait-and-see behavior that has characterized Angela Merkel’s time as leader.
This year, with its general election, was an important one for Germany. Yet nearly 90 days after the vote—a record for Germany—the country still doesn’t have a government. That’s nothing compared to the Netherlands, of course, which needed 225 days to form a new government in 2017, but the world is perhaps more anxious for Europe’s biggest economy to get its act together.
After Merkel and her Christian Democrats (CDU) suffered losses at the polls, the chancellor first attempted to form a “Jamaica” coalition with the Greens and the Free Democrats. That fell apart dramatically in November, and the unnerving prospect of a snap election reared its head.
German president Walter Steinmeier waded to the rescue, dragging the CDU and the Social Democratic party (SPD) to the table for something akin to marriage counseling. The SPD, Merkel’s junior partners in the previous “grand coalition” government, were initially loath to even think about going back into that partnership.
Now, both sides have to begin exploratory talks on Jan. 7. The Social Democrats, leery after two four-year stints (2005-2009 and 2013-2017) in government with the CDU, are determined to be more assertive this time round. For one, SPD leader Martin Schulz has reportedly demanded the post of finance minister.
Merkel stands bruised but not broken
The chancellor has been weakened after the election and the first failed coalition talks. While she is widely expected to complete her fourth term, she has taken flak from all sides. Her open-door refugee policy has been held up as the reason the far-right Alternative for Germany got into the federal parliament for the first time. Critics have blamed her consensus-building leadership for keeping the country static when it needs urgent tax and pension reform, along with domestic investment.
“It’s certain that Angela Merkel won’t have the political weight in German politics that she had in the past, that she had up until the election,” says Josef Janning, head of the European Council of Foreign Relations in Berlin. “With retrospect, it’s clear that probably the zenith of her term of office was sometime in early summer of 2015 and that since then she has had to contend with dwindling authority.” (He adds, that in general, chancellors govern longer than they should in Germany.)
While the country waits patiently to see if the coalition talks will succeed, life is pretty much carrying on as normal. State governments are able keep on making decisions that affect people, and many Germans are rather resigned to another grand coalition.
The German economy steams ahead
Germany’s juggernaut economy has had a cracking year—and experts expect more of the same going into 2018. The Ifo Institute said last week that it expects GDP to grow by 2.6% next year, noting that the economy was in “great shape” thanks mainly to its manufacturing sector, which is reaping the benefits of an improved global economic outlook.
The IFO’s December Index showed German business moral had dipped a tiny bit a this month, it remained one of the highest readings ever. Whether this giddy positivity can last until March—the earliest we can realistically expect a new government—remains to be seen.
“The economy is simply too strong to get affected by the political impasse,” Carsten Brzeski, chief economist at ING-DiBa told Quartz. “In short, a next GroKo [grand coalition] could be different from the old GroKo, but probably only at the margins.
Brzeski says that he would expect the next grand coalition to spend more on investment, which would be easier if the SPD managed to get the finance ministry: “Don’t expect the next GroKo to let go of the balanced budget (Schwarze Null) target, but they will use the fiscal room much more actively than over the last four years.”
Germany can’t ignore its climate issues
While Merkel rallied world leaders around the Paris climate accords in 2017—saying she “deplored” Donald Trump’s decision to pull the US out—a September report from environmental think-tank Agora Energiewende said that Germany is all but certain to miss its 2020 goal of reducing greenhouse-gas emissions by 40% of its 1990 levels; at best it will hit a 30% reduction.
“The longer climate protection is postponed, the higher the economic costs and disadvantages for the whole economy will be,” Claudia Kemfert, from the German Institute for Economic Research told Clean Energy Wire.
Rumblings about a diesel ban can be expected to get louder in 2018. And ultimately a grand coalition with the SPD may be a good thing for Germany’s environmental policies this time around: Schulz wants to phase out coal—as long as it’s not at the expense of jobs. His solution would be to invest billions into sustainable energy jobs that would pick up the slack.
The EU waits patiently on Germany
Of course, the wheels and cogs of the European Union haven’t ground to a halt while Germany digs itself out of its political ditch. Still, Brussels will be keen to have Berlin back and active before the March and June councils. French president Emmanuel Macron, keen to push his agenda of deeper EU fiscal union, will have to wait a little longer for some answers from Berlin.
“The alternative would have been a government of the FDP, and from a European perspective, or a French perspective, any German government that does not involve the FDP is a step forward, Carsten Nickel at Teneo Intelligence told Quartz. “Waiting for a couple of weeks longer, from Macron’s perspective, is absolutely bearable if ultimately you’re dealing with a pro-European collation.”
Now that strict money-master Wolfgang Schäuble is no longer finance minister, Macron won’t have to deal with someone who could have quashed his push for EU reform. “With Schäuble gone, a next GroKo could also be slightly—not significantly—more pro-European integration than over the last four years,” Carsten Breszki said.
Schulz invited a torrent of ridicule earlier this month, when he declared he wanted a United States of Europe by 2025. While he has attempted to explain that remark away, EU reform will be one of the issues high on the agenda for the SPD in coalition negotiations.