Executive Summary

Strong rule of law, but strategic weaknesses
Germany remains a country with state institutions firmly grounded in the rule of law and democratic principles. At the same time, numerous indicators show that governmental and administrative performance has been somewhat hampered by non-optimal internal coordination and a lack of strategic orientation. This year’s report also points to a striking contrast between governmental communication and overall governmental performance.
Difficulties in forming a government; conflicts within the government parties
German Chancellor Angela Merkel took the oath before Federal President Steinmeier on 14 March 2018 and the new government was inaugurated on the same day. It took 171 days to form the new government, much longer than for any previous government since 1949. Within weeks of its inauguration, the grand coalition government between the Christian Democrats (CDU/CSU) and Social Democrats (SPD) found itself in an escalating public conflict caused by a deep rift within the Christian democratic camp, and the long-standing dispute over immigration between Chancellor Angela Merkel (CDU) and Minister of the Interior Horst Seehofer (CSU). Seehofer’s erroneous expectation was that, by constantly and aggressively addressing the topic of migration, the Christian democratic camp could win back votes from the right-wing AfD. This conflict overshadowed the first year of the new government and was a disaster for the popularity of all grand coalition parties (CDU, CSU and SPD). After heavy losses for the Christian and social democrats in the two state elections in Bavaria and Hesse in the fall of 2018, the dispute was de-escalated through the joint resignation of Angela Merkel as CDU party leader and Horst Seehofer as CSU party leader. Nevertheless, this early phase of the new grand coalition has damaged the government’s reputation.
Polarization rising despite strong economy
This phase of bad communication stands in a sharp contrast to the good-to-excellent performance of the German political, economic and social system as a whole. The success of the right-wing anti-immigration and anti-EU AfD in the general election, and in the state elections in Bavaria and Hesse indicates greater polarization in German politics. However, the political positions of the traditional parties of government (i.e., the SPD and CDU/CSU) have substantially converged over the years. In the state parliaments, numerous variants of coalitions (none of which include the AfD) exist. All state-level coalitions have formed functioning and stable governments, indicating that the rise of the multiparty system has so far not damaged effective government formation. Furthermore, the recent state elections in Hesse and Bavaria have been followed by smooth subsequent coalition formations.
Unemployment at
record lows
Germany’s success in reducing structural unemployment has continued with employment now counting more than 45 million, again up more than half a million over the last year. Unemployment rates are at their lowest level since German re-unification, decreasing from 5.7% in 2017 to 5.2% in 2018. The employment boom and rising real incomes are feeding strong growth in tax revenues and social security contributions. As a consequence, Germany’s debt-to-GDP ratio has decreased from 80.1% in 2010 to a value just around the Maastricht threshold of 60%. The ongoing employment boom has considerably reduced the number of households in need of welfare support. In November 2018, for the first time since the introduction of the Hartz system, the number of supported households has fallen below three million. In addition, women’s labor market participation rate continues to increase, reaching about 70% (10 percentage points above the OECD average), although a relatively large share of women work part-time.
Integration successes despite controversies
The government’s internal conflict over migration is all the more surprising as Germany is not doing badly in this policy field. Not only has the number of incoming refugees continued to decline. There is also increasing evidence that the country’s integration policy performs better than in the past and also better than in comparable countries. This holds in particular for the labor market participation of migrants, including refugees, which proceeds relatively well and better than expected in 2015.
Setbacks in environ-
mental policy
With respect to Germany’s reputation as a global leader in environmental policies, the last year saw a setback when the German government had to admit that it will fail to realize its carbon emission reduction targets for 2020.
The lack of strategic orientation remains a weakness in German politics, with party politics often receiving more attention than the country’s long-run challenges. Following the last national election, the Chancellery rearranged the organizational structure, and introduced a new section for political planning, innovation and digital politics. It remains to be seen whether this indicates a move toward a more strategic policy orientation.
Tarnished aspects to successful performance
In summary, this year’s report confirms Germany’s current successful performance and indicates that the country has started to cope with the integration challenge of migrants. However, a lack of coherent communication, political leadership and a long-term orientation could further damage citizens’ perception of policy performance, and start to undermine the functioning of German democracy.
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