Key Challenges

Government communication and leadership
Communication flaws undermine public trust
The dismal performance of the government’s communication after its inauguration has further reduced the trust of citizens in the traditional parties of government, which received record-low results in the 2017 Bundestag election. This voter disappointment has contributed to the strikingly negative bias in many voters’ perceptions. While numerous facts point to improving conditions across various dimensions, a larger share of voters perceive recent developments to have been negative. This holds for various fields including crime (despite a fall in 2018), the economy (despite increasing real wages and declining unemployment) and social developments (despite a record low number of households receiving income support since the introduction of Hartz reforms). The government’s trustworthiness could definitely be improved with a stronger focus on strategic orientation instead of myopic election campaigning. The government should continue its recent attempt to further increase its strategic capacities. However, the role given to the new strategic units has been insufficient. These units must also be given greater voice in the policy formulation process.
A possible end to the long economic upswing
Cooling economy brings risks
A large number of external developments has led to a cooling in the German economy toward the end of the reporting year. These developments include the Brexit process, and the threat to the European Single Market form the rise of populist and anti-EU parties across Europe. For the global economy, trade conflicts resulting from U.S. policies under the Trump administration are a substantial risk to the export-dependent German economy. But there are also more structural developments. It cannot be taken for granted that the success of leading German industries (e.g., the automotive industry) will continue given the enormous speed of technological change resulting from the move toward electric and digitalized cars.
Environmental sustainability
Tension between industry and green goals
The foreseeable failure to comply with the carbon emission reduction target for 2020 was a setback for Germany’s ambitious environmental agenda. This has intensified the debate over the timeline for phasing out coal-fired power plants and the combustion engine in car production. In these debates, environmental policy must try to define a change-over that reconciles ambitious environmental targets with the need to defend the global competitiveness of German industries.
The pension system and demographic change
Demographic trends pose increasing danger
The lack of policy interest in demographic trends that will emerge from the late 2020s onward is the clearest example of a lack of strategic foresight in German politics. Germany’s aging population will mean that recent increases in welfare spending (e.g., increased pension payments for mothers and allowances for nursing care) will pose a significant challenge to future federal budgets. Demographic challenges will become more urgent toward 2030 with the approaching retirement of the “baby boomer” generation. This development also entails risks for social inclusion since an increase in old-age poverty is a real risk for workers who have a history of low-wage work with long spells of unemployment and who will rely completely on a statutory pension. Solving distributional disputes regarding the acceptable combination of contribution rates and pension levels is a difficult task. But early decisions would increase predictability and help younger cohorts to adjust their saving behaviors in good time.
Health care system
Health care sustainability must be a focus
In addition to pensions, the long-run sustainability of the health care system must be addressed. The system performs very well in providing high-quality health care services for the whole population but the government lacks an answer to the issue of financing the health care system over the medium term. German health care policies should urgently reconsider the rejection of more competitive elements, in particular with respect to pharmacies, and issues like distant sales or the market-entry of larger companies that promise substantial economies of scale and lower costs. Moreover, the health care system is much too slow in the take-up of efficiency-enhancing digitalized processes.
Digitalization and infrastructure
Falling behind on digital transformation
Preparing Germany for the digital age is a comprehensive task that requires adjustment across various fields like secondary and tertiary education, public administration, and innovation and infrastructure policies. Increasingly, critics point to insufficient digital networks, and more and more problems in the transport networks, including both rail and road. Government budgets must try to rebalance spending toward these types of value creation at the expense of current spending. But equal attention should be given to improving the conditions for private investment in digital infrastructure.
Tax policy
Tax policy too passive
Tax policy in Germany has been too passive over recent legislative periods. High marginal income tax rates particularly harm the integration of single parents into the labor market and create substantial work disincentives for second earners. And due to the passivity of German tax policies, and corporate tax cuts in the United States and numerous other OECD countries, the country’s effective tax burden on companies is now among the highest of any industrial country. The federal government should return to a more pro-active tax policy that no longer only acts when court decisions force a change in tax legislation.
Migrant integration
Successes evident on integration, work still needed
Overall, the integration of migrants, including those who have come as refugees since 2015, seems to proceed better than initially expected and the numbers of arriving asylum-seekers has strongly declined. Labor market participation of refugees develops surprisingly fast. However, the whole issue remains an immense task. The education performance of migrants has improved but still lags far behind the German population. In some cities and milieus, there is a clear risk that parallel migrant societies will emerge. Further efforts are required because a failure to integrate migrants will undermine societal acceptance of the idea of an open society.
SZ August 31, 2018:

Party Polarization

Increasingly polarized system
Since the general election in 2013, the German party system has not only changed but also become more polarized. The party system now reflects a typical multiparty system with six parties in the federal parliament, namely the CDU/CSU, the SPD, the FDP, the Greens, the Left Party and the AfD. The same tendency exists for the Länder parliaments where the anti-immigration and anti-EU AfD has gained seats in all states with particularly high shares in some of the new states of east Germany.
Divisions strong by
post-war standards
Because both the left and right poles of the political spectrum are represented in most of the Länder parliaments and the Bundestag, the German party system can now be classified as polarized. Although polarization is much weaker today than it was during the Weimar Republic in the inter-war years, it is much stronger than in most periods of the post-war era. The political positions of the traditional parties of government (i.e., the SPD and CDU/CSU) have substantially converged over the years, opening up a political space for more extreme competitors. In the state parliaments, numerous variants of coalitions exist, which all form functioning and stable governments, indicating that the rise of the multiparty system has so far not damaged effective policymaking.
Diverse coalitions exclude right-populist party
The only exception in coalition formation refers to the anti-immigration right-wing party, the AfD, which hitherto all other parties have excluded from any coalition. Evidence for the 2013 – 2017 period shows, however, that the AfD was able to exert some influence over migration policy. Moreover, in many instances, coalition partners have a difficult time reaching a compromise and have adopted policies that have failed to satisfy supporters on either side, which tends to lead to a further decline in opinion poll ratings for the governing parties, particularly the SPD. (Score: 7)
Fabian Engler, Svenja Bauer-Blaschkowski and Reimut Zohlnhöfer 2018: Disregarding the Voters? – Electoral Competition and the Merkel Government’s Public Policies, 2013-17, German Politics online first (doi: 10.1080/09644008.2018.1495709).
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