The German chancellor’s campaign for a third term relies on promises of more redistribution and regulation. Germany can’t afford such left-of-centre lavishness for long. But it keeps anti-euro forces at bay in Germany, giving Merkel a cover to push her “more Europe” agenda.
In Germany, two left-of-centre parties are competing for votes in the Sept. 22 election: the traditionally left-leaning Social Democrats and Angela Merkel’s supposedly conservative CDU. In her campaign for a third term, Merkel is promising higher pensions, more childcare benefits, tighter regulation of labour markets and rent control. All this comes with a price tag of up to 28.5 billion euros.
Higher public spending sounds like a good idea in a country with large current account surpluses and low bond yields. And a few of Merkel’s pledges, for example higher investments in road infrastructure and adjusting income taxes for inflation, are really helpful.
But the bulk of the manifesto glosses over the long-term challenges faced by Europe’s strongest economy: dismal demographics, weak private investment and unsatisfactory productivity growth. In addition, the labour market and the service sector remain too tightly regulated.
Right now, cyclical factors are masking these deeper problems. Merkel’s decision not to address them is in line with the country’s zeitgeist. Voters want to kick the can down the road and Merkel goes along.
She learned what happens to a staunch reform platform in her first campaign for chancellor in 2005. The unimpressed voters forced her into a grand coalition with the Social Democrats. She rose to her current status as Germany’s most popular politician only after she had relinquished her reformist zeal.
The softening is not helpful for Germany, but it’s good news for Europe. After initial dithering, Merkel decided to do all she can to keep the euro together – “more Europe”, as she put it. For all her reputation as a tough task master in the periphery, this commitment has led to many concessions which are highly unpopular at home. The majority of German voters don’t like bailouts, a banking union or the ECB’s bond buying.
Without Merkel’s personal popularity and credibility, the euro-saving efforts could well have foundered. As it stands, Merkel’s political success, including the wishful thinking of the current campaign, has neutered a new anti-euro party. The rest of Europe should praise her political talent and hope for her re-election.
This article was initially published as a Reuters Breakingviews comment on 24 June 2013.