Our thinking

Germany on the Eve of Elections

Our experts weigh in on the challenges the next German government will be facing.

The election campaign in the run-up to the Bundestag ballot was a disappointment for the German media. Hardly underway, pundits were already griping about the yawninducing boredom and paucity of political thrills. Many an expat in Germany was astonished when Chancellor Angela Merkel, like all her compatriots, nonchalantly traipsed off on a summer break and the campaign ground to a standstill.

But appearances deceive. It is true that Merkel is the undisputed reigning chancellor, with no real contender in sight. That benefits her party, the CDU. Frau Chancellor aside, though, the election campaign was hotly contested. Liberals and populists are sure to enter the next Bundestag, which will lend the German parliament an entirely new complexion and make for more colorful debates.

Merkel benefits from Germany's gravy train. The country is doing better than ever, despite its structural shortcomings. Its economy is flourishing; growth has hovered above 1.5 percent since 2014. Unemployment is low; prosperity is at an all-time high. Pushing 12 percent at Merkel's 2005 inauguration, the unemployment rate has dropped to around 5.5 percent. The situation is even brighter than it seems: The nation's 2.4 million unemployed are looking at more than 800,000 job vacancies, so Germany is actually approaching full employment. On the downside, companies are frustrated, for the pool of skilled workers has dwindled to a puddle. Debt is also under control. Since 2014, Federal Minister of Finance Wolfgang Schäuble has been budgeting without renewed borrowing. Even the influx of some 1.2 million refugees since 2015 hasn't put a dent in Germany's wallet. Schäuble footed the bill for this crisis by dipping into petty cash, so to speak. And exports are booming despite US President Donald Trump's laments. Germany set an all-time record in 2016 with a foreign trade surplus approaching €253 billion.

Merkel alone is not the author of all these success stories. Her greatest contribution to Germany's boom is perhaps to have done nothing wrong. The lion's share of credit for doing something right has to go to the labor market reforms of former chancellor Gerhard Schröder, who set the stage for the German 'job miracle.' The financial blessings bestowed upon Schäuble are largely down to the European Central Bank's low interest rate policy. And the thriving economy has much to do with Germany's hallowed social compact. Trade unions have refrained from demanding steep wage hikes for years now. Germany is currently ranked seventh in the EU in terms of labor costs, behind the Scandinavian countries, Belgium and France. 

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