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United we stand, divided we fall? Defining Germany’s future

4.22.18

The formation of yet another grand coalition between Angela Merkel’s Christian Democrats and the Social Democrats has brought to an end months of uncertainty in Germany, once known as a beacon of political stability. While contrary to many international and domestic commentators there was never cause for alarm, let alone a “constitutional crisis”, Germany is unlikely to return to business as usual either. The federal election results and a record period without a settled government have highlighted that the state of German politics has shifted fundamentally since the refugee crisis. But what’s next?

Leonard Novy’s talk at the International Investing Symposium at Berlin’s Hotel Adlon looked into the root causes of Germany’s seemingly sudden political upheaval, investigated what can be expected from its new government and discussed implications for the EU and the EU economy.

 

Key points:

– The long-cherished stability, which shaped German politics for decades, is eroding.

– The Big-tent parties (“Volksparteien”) are losing power and influence.

– Their move to the political center deprived Conservatives and Social Democrats of their respective identities.

– This – and a series of grand coalitions – created a fertile breeding ground for populism.

– It is not so much real economic conditions – nor exposure to refugees – that triggered the vote for the AfD.

– What lies behind its success is identity politics, a division between “Cosmopolitans” and nation-state oriented “Communitarians”.

– But also a political and cultural divide between East and West Germany – 28 years after reunification.

– While certainly no visionary achievement, the new coalition treaty shows a large degree of policy continuity.

– However, “business as usual” might well prove to be an insufficient response – both, to the substantial challenges ahead and to the political threat posed by populism.