German Finance Minister Olaf Scholz attends a debate in parliament in Berlin, July 8, 2018 (Bundestag / Inga Kjer)

German Social Democrats, Greens and Free Liberal Democrats are ready to rule. Two months after the federal election almost to the day, they unveiled a coalition agreement which sets out their program for the next four years.

Social Democratic Party (SPD) leader Olaf Scholz, who would succeed Angela Merkel as chancellor, called the agreement “Germany’s greatest industrial modernization in over 100 years”. It calls for major investments in decarbonisation and digitization.

The leader of the Free Democratic Party (FDP), Christian Lindner, would succeed Scholz at the finance ministry, although his party is the smallest of the coalition “at the traffic lights” (named after the party colors).

The Greens get the climate and foreign policy, and the right to appoint the next German EU commissioner. (Unless conservative Ursula von der Leyen is re-elected chair of the committee.)

Here are the highlights.

Budget and taxes

  • No tax increase.
  • Reapply the constitutional debt brake, which limits structural deficits to 0.35% of economic output, from 2023.

These are victories for the FDP. The debt brake has been suspended during COVID.

  • Use the KfW public development bank to invest in the green economy.

This bypasses the debt brake.

  • No cuts in pensions. No increase in retirement age.

Important for the SPD.

Climate and energy

  • Reduce greenhouse gas emissions to 1990 levels by 2050.

The objective of the Paris Climate Agreement.

  • “Ideally” phase out coal by 2030.
  • Become a “leader” in green hydrogen.
  • Renewable energies will represent 80% of electricity production by 2030.
  • Speed ​​up the planning and approval of new energy projects.
  • Simplify the rules for replacing aging wind turbines.

It is ambitious. 35% of German electricity production is currently renewable. Without nuclear power, which neither the Social Democrats nor the Greens support, Germany has had to burn more coal and import Russian natural gas.

  • Abolish the renewable energy tax on electricity bills.
  • Require all new buildings to install solar panels on their roofs.

This should help reduce electricity costs for consumers.

Defense

  • Deepen the integration of defense in the EU.
  • Spend 3% of GDP on “international action” (defense and foreign aid).
  • Obtain a nuclear-capable successor to the Tornado fighter.

Germany has not met the NATO spending target of 2% since reunification. His army is barely ready for battle. Less than half of Bundeswehrs 244 main battle tanks are operational. None of the six German submarines can leave the port. Ammunition and spare parts are lacking.

Germany has a nuclear mission within NATO. In the event of war, American atomic bombs in the country come under German control. The left has wanted to get rid of it for years. By stipulating that the Tornado’s successor must have nuclear capability, they are less likely to achieve their wish.

Digitization

  • Connect remote areas to high speed internet.
  • Scan health records (patients can opt out) and prescriptions.
  • Facilitate approval procedures for (digital) infrastructure.
  • Invest in artificial intelligence, cybersecurity, robotics and quantum computing.
  • Invest in digitization and IT for schools.
  • Increase research and development spending to 3.5% of GDP by 2025.

The pandemic has made the need to invest in digital technology painfully obvious. Home schooling and work were hampered by the lack of computers and the lack of high-speed internet. Half of German schools do not have Wi-Fi. Health authorities still use the fax. The German 4G mobile network is one of the worst in Europe.

Economy and business

  • Oblige the self-employed to contribute to a pension fund.
  • Increase the minimum wage from € 9.60 to € 12 per hour.
  • Replace “Hartz IV” unemployment benefits with a more generous “citizen’s allowance”.

Currently, benefits are linked to assets and may be reduced if the beneficiary refuses a job offer.

  • Create “one-stop-shops” for entrepreneurs, so new businesses can be launched in a day.
  • Improve the regulatory frameworks for cooperatives and social enterprises.
  • Mobilize start-up funding from institutional investors, including pension funds.
  • Simplify the rules for businesses and the self-employed.

Under the last government, Germany fell from third to seventh place in the ranking of the World Economic Forum competitiveness index. Capital and regulatory requirements make it more difficult to start a business in Germany than in neighboring Denmark or the Netherlands. The Greens and the Liberals are keen to promote start-ups, especially if they work in the digital or green economy.

The challenge is that many business and employment regulations are developed and managed by state governments, and the traffic light coalition does not have a majority in the Federal Council, or Bundesrat.

Europe

  • Complement the European banking union with an EU-wide reinsurance system for national deposits.
  • Open to reform of the Stability and Growth Pact, which limits debts and deficits.
  • No consolidation of debts. No Eurobonds.
  • Support an EU-wide carbon border adjustment mechanism.

A mixed bag for federalists. This suggests that Germany will continue to seek equidistance between the “frugal” north and the integrationist south.

The reform of the Stability and Growth Pact is long overdue. Few countries meet the treaty deficit and debt limits of 3 and 60 percent of GDP, respectively.

  • Link the disbursement of COVID-19 stimulus funds to respect for the rule of law.

So no reprieve for Hungary and Poland.

  • Transnational lists for the European Parliament elections.
  • Switch to qualified majority voting in foreign policy.

These correspond to the reform ambitions of French President Emmanuel Macron.

Lodging

  • Build 400,000 housing units per year, including 100,000 subsidized housing units.
  • The capped rent increases by 11%, against 15%, over three years in expensive neighborhoods.
  • Rules of ease for first-time buyers.

Deutsche Bank estimates that the country needs a million more households. House prices have doubled over the past decade. Half of the population rents, and rents rose 35 percent. German mortgage requirements are among the strictest in Europe.

Migration

  • Allow dual nationality.
  • Allow refugees to bring their relatives to Germany.
  • Automatically grant nationality to children born in Germany provided that one of their parents is a legal resident.
  • Rules of ease for exchange students and highly qualified migrants.
  • Reduce the minimum residence required for naturalization to five years.

The German population is expected to drop from 83 to 74 million by 2060. There would then be eleven million Germans of working age less, but five million more retirees. Doubling migration to 311,000 could stabilize the population.

Mobility

  • 15 million electric cars by 2030.
  • Become a European hub for the production and recycling of batteries.
  • Double rail passengers by 2030.
  • Electrify 75% of the rail by 2030.
  • Increase the tax on polluting cars and trucks.
  • Require transport companies to share data in real time.
  • Support research on synthetic fuels.
  • Tighten subsidies for electric and hybrid cars.

The SPD sees great potential for the production and recycling of batteries to replace jobs that will be lost in the fossil fuel industries.

The FDP called in its manifesto for synthetic fuels to replace kerosene and avoid banning domestic flights.

All three parties argued for rail expansion, but a liberal proposal to privatize Deutsche Bahn was unsuccessful.

Russia

Germany obtains 40 percent of its gas from Russia. The outgoing coalition has resisted pressure from inside and outside Germany to disconnect Nord Stream 2, an extension of the Baltic Sea pipeline that allows Russia to bypass transit countries in Europe from the Is, like Ukraine. The new ruling parties do not mention the pipeline in their agreement. They simply state:

We will take into account various perceptions of threats and focus on a common and coherent EU policy towards Russia.

The Greens and the Liberals have taken a stronger stance in their manifestos. It seems that the Social Democrats who are friends of Russia have won their case.


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