End of an era – a new angle
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Last weekend at the Hesse state election in Germany, the German Chancellor and Europe’s most powerful politician Angela Merkel announced she will step down in 2021.
Ms Merkel, after ruling Germany for the last 13 years, will “not be seeking any political post” once her term ends. Since her appointment in 2005, her strength has grown through Europe’s economic crisis and role as a conduit between Russia and the West. For many, Merkel represents stability in an unstable and shifting world. So why has Merkel’s political grip loosened?
Merkel’s hand appears to have weakened after more than 1 million immigrants were allowed into the country in 2015/16. Embedding such a vast number of migrants has proved troublesome with negative press reports of crime and violence. Unrest has also been triggered within the CDU party after Merkel shifted its communist roots, propelling it to Germany’s political centre.
Despite her tarnished popularity it is worth remembering Merkel’s influence in navigating Germany to Europe’s most powerful nation. Today Germany has falling debt levels and the world’s largest current account surplus; this happens when a country’s exports exceeds its imports. A surplus on trade increases growth in Gross Domestic Product (GDP), hence generally desirable. However, economists usually point out that dominance in trade can also coincide with sluggish low earner wage growth which can, over time, cause domestic political problems.
Here are some highlights of some notable Merkel successes:
2005 – Germany, after reunification, struggled to cope with high and rising unemployment, today it is falling and stands at 5.1%.
2007 – Russia cut off gas supplies to Belarus, the site for the main pipeline to Europe. Shortly after, Merkel visited President Putin, and assurances were given that Putin’s ‘pipeline politics’ would not affect the EU’s or Germany’s energy supply.
Economic growth – reached an average of 2.0% in Merkel’s second term at a time when the rest of Europe limped along at 0.5%.
Export boom – Germany has become a global powerhouse in manufacturing creating a $280bn billion trade surplus in goods in 2016 – a figure only surpassed by China.
Energy Revolution – electricity has increasingly come from renewables putting them at the forefront of sustainable energy and a champion of climate change.
Today – the German economy is the 4th largest in the world!
So, even with the benefits of an export boom, and the riches of being part of a European powerhouse, voters are now seeking a fresh start with a new vision. This has started a debate – will Ms. Merkel finish the remainder of her three year terms, or will she jump rather than be pushed?
German politics today is splintered and polarised, just like many Western allies. The far-right populist Afd party is capitalising on the immigration crisis and a more inward looking Germany would worry European leaders, especially close ally, French President, Emmanuel Macron. He has made it clear that he wants his tenure to be associated with further and deeper European integration. Macron, for now, looks to be the default leader, but he will still need strong backing and support from Germany to push through his integrationist policies.
Whoever succeeds Merkel, and eventually steps up to lead Europe, will be the subject of much debate and speculation. One wonders if this will be a big distraction, making it necessary for Europe to agree a quick deal with UK Brexit negotiators rather than dragging on into a more uncertain political era.