Why Angela Merkel Should Be Grateful to Donald Trump
With Merkel lacking both an agenda and a vision, the US push to deal with Germany’s eternal export surplus is a welcome impetus for long overdue domestic reforms.
February 3, 2017
Angela Merkel is running again for chancellor of Germany. Although her party might well be punished for her very liberal policies on immigration, chances are that she will end up with voters granting her a fourth term in office in September.
The open question is that of political mechanics: Who will Merkel need as a coalition partner to form yet another government under her leadership?
Whatever her own personal preference, in the end she won’t mind which party (or parties) will be her junior partner.
Why run again?
The far more interesting question is this: Why does Merkel even want to remain chancellor? She is exhausted. Worse, even her biggest supporters agree that she is lacking a vision of what to achieve in this role.
Merkel has talked about the need to advance the digitization of the German economy and society as well as other pressing matters for a long time. Evidently, the issues never caught fire with her.
The oft-called for transformation of society isn’t going anywhere, even though the funds are certainly available – if the political will was there.
Crisis management forever?
To date, Merkel has relied on her ability to be a pragmatist and undertake an endless series of crisis management activities. But whatever the crisis was – be it financial, the eurozone or migration – Merkel has essentially always reacted and not acted.
She has punted, instead of ever laying down a broader vision. At some point – i.e., now – all of that is no longer awe-inspiring. It becomes lame.
As a result, neither of these crises are truly solved: Banks in Europe are still shaky, lacking billions on their balance sheets.
The eurozone is far from rescued and the migration crisis was put under control by Austria and other countries on the so called “Balkan route” (and not so much by Merkel’s unsavory deal with the autocratic Erdogan regime in Turkey).
Plus, almost everybody has an ominous feeling that any of these crises might return with a vengeance at any moment.
Donald Trump as an inspiration for Merkel
Now, Donald Trumps unexpectedly rides to Merkel’s rescue. Of course, this is not happening in any planned fashion.
She clearly is not his favorite politician in the world. There are even signs, not just from his Twitter account, that he despises her.
Mr. Trump’s impact comes from challenging Merkel’s fundamental basis of success: the strength of the German economy. Not that Mrs. Merkel did anything in the last 11 years to strengthen the national economy.
She not only enjoyed the political benefits of the structural reforms undertaken by her predecessor Gerhard Schröder (who lost the elections as a result), but also did much with her benefits-boosting policies to sap the German economy’s remarkable energy.
The German economy as an Achilles heel?
If the German economy were to enter into difficult waters, the support for Mrs. Merkel would shrink significantly. It would become obvious very rapidly that, under Merkel’s tutelage, the country wasted the good years to prepare for the bad ones.
A direct attack on the German export model poses such a threat. Over the past years, the importance of exports has risen significantly. Nearly 50% of Germany’s GDP is generated by exports.
Germany’s net export surplus amounts to nearly 9% of GDP. This is the highest surplus of all major economies.
There is more to life than exports
While this extraordinary success has a lot to do with the specific structure of the German exports – mainly machinery, equipment and cars – the quality of its products and the work ethics of its labor force, it is also the result of the euro.
The common currency locks Germany’s main trading partners in Europe into a fixed exchange rate regime and the weakness of many of those national economies leads to a low valuation of the euro.
Even worse, it is also a result of a misshaped German economic policy. Running a trade surplus not only reflects what Germany boosters always tell you – that the country offers good products at a good price. The surplus also represents an export of domestic savings as capital is accumulated abroad.
A ready-made plan
Although this might in theory be the right thing to do for an ageing society like Germany, it is clearly not necessary at such a scale.
To make matters worse, German banks are not good investors, which has led to significant losses on Germany’s international investments. (Just remember German banks’ ample involvement in the U.S. subprime crisis.)
The answer to this challenge is straightforward: encourage domestic investment and consumption in Germany. And tax corporations at a higher level. They are not using their cash flows for investments, but rather choose to hoard the money.
Also give more money to consumers by lowering taxes for the lower and middle segment of taxpayers – which are the ones, when they have more cash on hand, that demonstrate a higher propensity to spend it.
And finally, increase public investment to restore Germany’s crippling infrastructure, improve education and build a broadband network on the level long needed.
Trump boosts Merkel
Coming up with such a program might help to tame international criticism of Germany and at the same time benefit Germany. It could well be an agenda for Angela Merkel’s fourth term.
Of course, you might think, that this would just be another crisis. But that’s exactly the point. If the economy as such leaves Merkel cold, the direct attack from Donald Trump and his team on the German economy moves that subject matter into Merkel’s comfort zone – crisis management.
After all, she wouldn’t be handling the economy, but working to improve relations with the United States.
Moreover, this time, it is a crisis that Angela Merkel could really solve, since it just pertains to rejiggering the German economy – and doesn’t really involve other nations’ economic habits.
Who will Merkel need as a coalition partner to form yet another government under her leadership?
Whatever the crisis be - financial, the eurozone or migration – Merkel has always reacted, not acted.
The migration crisis was put under control by Austria and other countries, not by Merkel’s unsavory deal with Erdogan.
Trump's direct attack on the German economy moves that matter into Merkel’s comfort zone – crisis management.