Germany’s reckoning, with Europe on the line

The new government in Berlin is inheriting a tangle of unresolved problems resulting from decades of political mismanagement.

Germany is located at the heart of the European landmass. It is also the region’s largest economy and most populous country. What happens in Berlin shapes Europe as a whole.

Stagnation sold as stability

For decades, Germany was the continent’s engine, largely thanks to its industrial base and the Mittelstand – a network of dynamic, mid-sized businesses. But over the past 20 years, Germany’s governments and administrations have taken an increasingly interventionist approach. Business and the once-proud civil service are now suffocating under a dense, often contradictory web of regulations, some imposed from Brussels, but many homegrown. Innovation is stifled. For too long, consecutive governments successfully sold stagnation as stability. But that house of cards is now collapsing.

Despite its failures, the political-technocratic class has proven remarkably resilient. It continues to respond to problems with the same ideological – or, at best, opportunistic – tools that helped cause them.

Germany now suffers from a bloated state that drains talent from the economy and captures capital through excessive taxation.

 

Germany’s complex and arbitrary tax system only adds to the burden. Filing a correct return has become nearly impossible. The bloated tax administration, combined with overregulation, is dragging down productivity. Former Finance Minister Hans Eichel (1999-2005) once summed up the twisted logic: “A complex society needs complex tax law.” That mindset persists, ignoring both social reality and the constitutional demand for clarity in legislation. While taxes are claimed to promote justice, their actual effect is growing oppression, a trend increasingly common around the world.

Germany now suffers from a bloated state that drains talent from the economy and captures capital through excessive taxation, depriving the economy of the capital needed for private investment.

Another heavy burden on citizens and businesses is the cost of energy. After the Fukushima disaster in Japan, the Merkel government made populist and short-sighted decisions: shut down nuclear power, push wind and solar, and depend on cheap gas from Russia. The combustion engine was also abandoned. Now Russian gas is no longer an option, and the automotive sector faces a competitiveness crisis. With Europe’s highest energy prices, much of German industry has lost its global edge. The Ministry of Economy and Environment may have caused long-term damage to the tune of over a trillion euros.

That ministry, under a previous leadership that was initially incompetent and later ideologically driven, failed to address energy affordability and security. First they made Germany dependent on Russian gas; then they ignored the instability issues of sun and wind power generation. Germany is now vulnerable to blackouts like those seen recently in Spain and Portugal.

Meanwhile, infrastructure has decayed and digitalization has stalled.

A safeguard that silences voters

Citizens sensed the rot. The previous coalition parties were voted out. The Christian Democrats (CDU) were given a leap of faith and emerged as the largest party, but they were closely followed by the Alternative for Germany (AfD), the real winner of the election.

The new government, led by Friedrich Merz, includes several promising appointments. Notably, the appointment of successful business leaders, such as Katherina Reiche as economy minister, inspires hope.

However, the AfD was excluded under the so-called Brandmauer (firewall) against the right. Mr. Merz formed a coalition with the Social Democrats (SPD) – the clear losers in the election. Because the CDU was left with no alternative coalition partner, the SPD held a strong position in negotiations, leading to questionable elements in the coalition agreement.

The start was shaky. Mr. Merz broke his promise to uphold the Schuldenbremse (debt brake), a constitutional clause requiring a two-thirds majority to change. Given the AfD’s election success, that majority was no longer possible in the new Bundestag. The motion was agreed through a procedural workaround: The outgoing government initiated the change, which passed with votes from the SPD, Greens and CDU. This move damaged the credibility of the new leader before his government had even begun. AfD surged to number one in the polls.

Then came another blow. When the Bundestag was due to vote Mr. Merz in as chancellor, his coalition – though it holds a majority – failed on the first ballot. After frantic negotiations, a second vote succeeded, but the new chancellor emerged considerably weakened.

And a larger storm is brewing.

Germany’s domestic intelligence agency, the Federal Office for the Protection of the Constitution, recently designated the AfD as a confirmed right-wing extremist organization. This allows surveillance of all its representatives’ communications. More significantly, it could open the door to legal proceedings aimed at banning the AfD entirely – a party that holds about a quarter of the Bundestag’s seats, with many of its voters certainly not radical.

Such a ban must be initiated by the government. The SPD appears willing, as do elements of the CDU’s left wing. Chancellor Merz’s shaky confirmation strengthens the SPD’s hand and increases the likelihood that they will push for this measure.

But there is a major problem: The key study underpinning the intelligence agency’s decision is classified. This secrecy rightfully raises doubts. In a democratic system, transparency for voters is essential.

Surprisingly, the office backpedaled after just two days and temporarily suspended the decision, though it made clear it still stands by its position. There may be reluctance to disclose what informed the original move, but the issue is far from resolved.

Banning a major party would inflict deep damage on democracy and freedom in Germany. In a free society, appointment and disqualification of elected representatives is the prerogative of the voters, not the judicial system. The concerns voiced by the United States government are justified. Such a ban would nullify the parliamentary mandates of AfD representatives, leaving the Bundestag with a strong left-wing majority – an outcome clearly at odds with the will of voters in the last election. One can only hope Mr. Merz still has enough authority to prevent this.

This comment was originally published here: https://www.gisreportsonline.com/r/merz-germany/