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Let’s cheer the end of Merkel’s reign
Germany needs bold and decisive leadership, says Matthew Lynn. The sooner Angela Merkel departs the stage, the better.
It looks as if Angela Merkel has finally lost the election that took place in Germany in September. Her centre-right CDU took only 32.9% of the vote, while the far-right Alternative for Germany rose to 12.6%; the Greens and the liberal FDP also scored well. She has been trying to piece together a so-called Jamaica coalition of the CDU, the FDP and the Greens, but talks have not gone well.
Imagine trying to get Caroline Lucas, Boris Johnson and Nicola Sturgeon into the same government. Whether she limps on in a minority government, or is forced into fresh elections, remains to be seen. Either way she makes Theresa May look like a commanding figure.
Will anyone be sorry to see her depart? The markets, understandably, prefer continuity to disruption. They know Merkel and they trust her policies. But sometimes a radical change is for the better and that is certainly true in Germany right now. Here's why.
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First, Merkel's brand of cautious, consensus politics has left the eurozone in a mess. It is doing slightly better this year, but only because the European Central Bank has printed money by the truck-load. There are only two ways it can go from here.
Either it is turned into genuine monetary union, with a common fiscal policy and harmonised taxes, as France's President Emmanuel Macron has suggested. Or else some countries should be allowed to peel away, and be given help to leave. You can make a respectable argument for both options. But Merkel won't allow either. The result? Stagnation.
Second, Merkel has presided over a decline in German competitiveness. Sure, Germany exports a lot, and has racked up huge trade surpluses. But that is hardly a measure of success. The fundamentals are not in great shape. The hasty phasing out of nuclear power has led to some of the highest energy costs in the world (hardly a minor matter in a country that relies on manufacturing).
She has introduced the country's first minimum wage, pushing up labour costs. Taxes have remained high even with a budget surplus which is one reason the tax-cutting FDP did well at the election. Where are the German leaders in internet technology, or in the emerging industries of robotics or artificial intelligence? The country badly needs some pro-growth, pro-entrepreneurship policies. But Merkel won't tolerate them.
Finally, there is that surplus. Merkel has allowed it to grow to a massive 9% of GDP, one of the largest in the world. Sure, Germany has always been good at exporting, but this is crazy. Through much of the 1990s Germany ran deficits, and even past surpluses have never been much above 3% or 4% of GDP. It has doubled in the last decade as percentage of GDP. Trade imbalances are a major cause of financial instability, for the simple reason they have to be recycled through the banking system. In effect, Germany is recklessly exporting deflation and deindustrialisation to the rest of the world.
It could fix that if it wanted to. It could massively increase public spending to boost domestic demand until the surplus was reduced. Or cut taxes and borrow more. Or it could leave the euro. But Merkel won't agree any fix or admit that it is a problem. Instead, the surplus just rises and rises. It is now the most likely cause of the next financial crisis.
Merkel has now been chancellor for 12 years, but she has remarkably little to show for it, certainly compared with previous long-serving post-war chancellors. She has held on to office, but only by negotiating compromises and avoiding hard choices. Germany could use some bold and decisive leadership right now, and so could Europe. It won't get that from Merkel and the sooner she departs the stage, the better it will be.
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Matthew Lynn is a columnist for Bloomberg and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
