Germany

   
 

Executive Summary

Strong record of
economic success
Germany remains a country with a far-reaching democratic consensus and state institutions firmly grounded in the rule of law and democratic principles. It is now looking back at a decade of stable GDP growth, very strong employment growth and a significant increase in disposable incomes both among the active workforce and among pensioners. This economic success also had a positive effect on social inclusion, with the number of recipients of basic income support (Hartz IV) declining continuously over the period. Between 2017 and 2019, for example, the number of recipients fell from 4.4 million to 3.9 million. This decline is all the more remarkable given that numerous refugees who entered Germany since 2015 have newly entered the Hartz transfer system. At the same time, the tax and transfer system has continued to act as a strong corrective to highly unequal market incomes, producing much less unequal disposable incomes.
Export decline triggers
downturn, employment
remains strong
The period under review saw a cyclical downturn. While an outright recession was avoided by the close of the period, the annual GDP growth rate fell significantly to around 0.5%. Germany’s export industry was seriously undercut by the international trade conflict and the lost momentum within the international trading system. However, strong levels of private consumption, government spending and construction were able to compensate for the export-sector downturn, successfully stabilizing the economy. Labor-market statistics for October 2019 still showed increasing employment despite the falling levels of GDP growth. Unemployment rates reached their lowest level since German unification, decreasing to 4.8% (national definition) in October 2019 compared to 5.1% in 2018. Current indicators also confirm that the country has dealt well with the influx of high numbers of refugees in 2015 – 2016, whose labor-market integration has proceeded better than many expected.
Right-wing party rising, big parties shrinking. Coalition calculus becoming more complex
Although the prominence of the migration debate has subsided with the falling numbers of refugees, the 2015 – 2016 refugee crisis seems to have had a permanent impact on the German party system. In the period under review, the right-wing and anti-migration party Alternative for Germany (AfD) was further able to establish itself as a long-term political power within the newly emerging German party spectrum. In 2019, Germany had three state elections; each of these illustrated that the two major parties now governing at the federal level, the Christian Democratic Union (CDU) and the Social Democratic Party (SPD), are dramatically losing support, with consequent gains for the Greens, the AfD and the Left. Current federal-level opinion polls signal that the SPD could tumble from being one of the two main parties to becoming one of the smaller parties in the party system. At the same time, the Greens could be on their way to catching up with the CDU. Although coalition formation has become more complicated, numerous coalition variants exist at the state level, all of which form functioning and stable governments. This indicates that the rise of the multiparty system has not thus far damaged the ability to engage in effective policymaking. The only outsider with regard to coalition formation is the AfD, which all other parties have to date excluded from any coalition.
Voter alienation despite coalition successes
The declining levels of voter support for the traditional large parties (“Volksparteien”) aligned in the grand-coalition government is remarkable given the excellent economic performance, and the high effectiveness of decision-making and realization of election promises. Both the government’s own stocktaking and independent reviews confirm that by November 2019, the government had already executed a high number of the envisaged policies laid down in the coalition agreement of March 2018. Hence, it is difficult to explain the growing voter alienation through any reference to a deteriorating effectiveness of policymaking and implementation.
Climate change now top political issue; milestones in climate-change policy
However, the year 2019 also saw a striking change in the political issues deemed most pressing by the country’s electorate. In short, climate change has replaced migration as the dominant policy issue, a fact that also helps explain the new rise of the Greens in opinion polls. As a consequence of the frequent and massive demonstrations led by the younger generation (e.g., the Fridays for Future movement), the issue has replaced migration as the top concern for large groups of the population. The government has sought to be responsive, and has given up its previous complacency regarding its failure to reach emissions-reduction targets. Two climate-policy milestones were set in 2019. First, the Coal Commission presented its comprehensive roadmap for the phase-out of coal-fired power generation in Germany by 2038. Second, the government initiated legislation for its Climate Package, which provides for the introduction of CO2 pricing even for traffic and housing, sectors that do not currently form a part of the EU’s Emission Trading System. It remains to be seen whether the new CO2 price is sufficiently high to speed up emissions reductions. However, these measures have brought Germany back into the group of countries that are demonstrating their climate ambitions by imposing politically costly new taxes on car drivers, home owners and tenants.
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