German Stasis In the Grips of Merkel's 'Lethargocracy'
The German economy may be doing well now, but significant challenges lurk in the near future. Chancellor Merkel, though, has succumbed to the torpor of her electorate and has shown no willingness to address badly needed reforms.
Social Democrat eminence grise Franz Müntefering is typing at his typewriter, an old Erika model. There is no laptop and no desktop in his office. He has spent his entire political life writing on the Erika, and now, in the final stretch, he isn't about to change. He is serving out his last few days as a member of parliament; the moving boxes are stacked behind the door of his Berlin office.
Müntefering is 73, and he has been a politician for almost as many years. He has countless stories to tell about parliament and party headquarters, the kinds of anecdotes that many others can relate as well. There is, however, one experience makes Müntefering unique; he did something that no other politician has accomplished or even wanted to accomplish. He reformed Germany in a time of contentment.
Müntefering was instrumental in the imposition of two unpopular measures on the country. The first came in 2003. Together with Chancellor Gerhard Schröder, he was responsible for pushing through far-reaching belt tightening measures, including welfare reform, designed to improve Germany's competitiveness. The package was known as Agenda 2010 and is one of the reasons that Germany has managed to weather the numerous financial, currency and economic crises that have struck Europe since 2008.
A few years later, Müntefering struck again, taking aim at the retirement age. Unlike in 2003, Germany was doing relatively well in the spring of 2006 and the economy was booming. Nevertheless, Müntefering was convinced that the retirement age needed to be raised from 65 to 67. It was a textbook anti-cyclical approach, one which is hardly ever used in practice. He saw reforms as a kind of insurance for the future, to be undertaken at a time when the country was in good shape.
'Isn't Courageous Enough'
At the time, Müntefering was vice chancellor during Angela Merkel's first term in office. "We decided on the reform together," he says of raising the retirement age. But it was unpopular and ultimately, Merkel backed away. "She left me standing alone out in the rain with the reform," he says. "Because she isn't courageous enough." Müntefering ultimately got his way.
The SPD man had the courage to do something Merkel would never venture -- not then and not today -- and what hardly any democratically elected politician has ever ventured. He had the courage to ask something of the country, even though the mood for change was limited and the need for change unapparent. Müntefering introduced the reform because he believed it was his duty, and because he thought it was a smart move that would serve the country well in the future.
"Come on, let's sit down," says Müntefering. He gets up from his typewriter, walks across the room and takes a seat at a small conference table. He is wearing a gray suit with a gray tie, the outfit of a man who was never interested in looking glamorous. Democracy is great, says Müntefering. "There is nothing better. But unfortunately it's also very much tied to legislative periods."
As he speaks, the ceiling of his modest office begins to shake, and so do the lamps and the window shades. It feels like a mild earthquake. "The subway," Müntefering mumbles when he notices the looks of concern on his visitors' faces. He doesn't even notice the rumbling anymore, nor does he complain that his party has assigned him, a former party chairman and deputy chancellor, to this type of office. The SPD didn't thank him for his courage, but instead held the reform against him.
"Merkel and Co. are refusing to do many of the things we need to do for the future," says Müntefering. Of course he makes such comments with a view toward the ongoing campaign, but that doesn't make him wrong. The only question is: Is there a way out of the dilemma Merkel and other politicians find themselves in -- a way out of the stagnation that stems from the fear of being punished by voters? Do politicians have only the choice between lack of courage and loss of power?
No Need for Action?
The period since 2009 has been a domestic policy black hole. No reforms were passed that looked beyond just the next few years. Yet decisive action is critical, especially now -- notwithstanding the country's low unemployment rate, record-high tax revenues and an export economy that continues to set new records. But the situation is only looks rosy. Germany is not prepared for the changes that lie ahead. Clear structural reforms are necessary, and yet lawmakers deny that there is any need for action.
Germany's social welfare systems are designed for a society that constantly generates growth and never ages -- in other words, for fair-weather conditions. Not even now, in times of historically high contributions and revenues, have lawmakers been able to compel pension, health and long-term care insurance companies to build adequate reserves for the more difficult times that lie ahead -- times in which one in two Germans will be retired and the number of the chronically ill and people in need of care will be twice as high as it is today. Those who fail to act now are only creating the crises of the future.
The same applies to education policy. In a rhetorical sense, it may be an important element of all political speeches. But in reality, the promise to enable every child in Germany to have the best education possible has turned into a farce and the consequences will only become apparent many years down the road. The problems with education are not just the result of a lack of funding, but are also caused by the jumble of jurisdictions among the federal, state and local governments in Germany, where individual levels of government are mutually obstructive. And yet, no one is willing to tackle the issue.
The fact that Germany still has one of Europe's most complicated tax systems is relatively unimportant, compared to other issues. Still, it is symptomatic. The task force on reforming the value-added tax rate, which was stipulated in Merkel's coalition agreement between her conservatives and the pro-business Free Democratic Party (FDP) hasn't managed to meet even once in four years. In the same period, the government hasn't managed to refrain from taking on new debt, showing little interest in reducing its existing debt of 1.053 trillion ($1.4 trillion), despite a propitious economy and record-high tax revenues.
While the government shies away from making necessary demands on its citizens, the steps it expects its European neighbors to take are harsher than ever. In interviews, Merkel often mentions the need for "fundamental structural reforms," and says things like: "Everyone must know that things cannot go on this way." But she is talking about Europe, not the country she runs.
"A few more things have to change in Europe," says CDU parliamentary floor leader Volker Kauder. "We must continue to expect the states to implement their adjustments," says Finance Minister Wolfgang Schäuble. "This is tough for the population, but there is no way around it."
The consequence of such statements is dramatic social and political dislocation in Southern Europe. One government after the next has stumbled or even fallen over the demands it was forced to make on its voters: pension cuts of up to 30 percent, slashes to social benefits and healthcare, and mass layoffs of government employees. All of this may be necessary, but Germany's austerity demands on the Southern Europeans would be more credible if it were willing to implement at least a fraction of these measures at home. But top politicians in Berlin are only bold when it comes to the citizens of other countries.
As a result, Germany is stuck in a holding pattern that extends across all parties. The SPD has long since turned its back on the Agenda 2010 reforms and Merkel has concluded that citizens are unwilling to put up with the pain of reform. When Merkel is asked about the need for reform in Germany, she mentions the increase of the retirement age to 67 -- in other words, something that was already done, by Müntefering. Germany, she says, is a country where "you can see that reforms work." She prefers not to mention that the reforms that are working are not hers.
Instead, her party has made campaign promises this summer amounting to about 30 billion in additional spending. Should the opposition manage to beat Merkel, it will be even more expensive. Plato said that democracy tends to make you fat and that democratically elected politicians would rather promise their people good deeds than prescribe them a diet.
- Part 1: In the Grips of Merkel's 'Lethargocracy'
- Part 2: The Absence of Long-Term Thinking