The German elections have resulted in a victory for the CDU/CSU. That was not entirely unexpected. The same cannot be said for the historic defeat of the SPD, which recorded its worst result since 1887.
You read that correctly: the most dramatic election outcome in almost 140 years. And yet, even after these elections, we are getting much of the same again. Do not expect a German resurgence anytime soon.
Luck
Due to an arbitrary rule that excludes parties with less than five percent of the vote from entering the Bundestag, CDU/CSU and SPD have, with some luck, once again secured a majority together—and they are more than happy to celebrate that fact.
It evokes quite a few mixed feelings. Is it not rather odd that the two parties responsible for Germany’s decline are happily continuing together? I have to tread carefully here, because before you know it, you are labelled a right-wing radical. Incidentally, I find it peculiar that in today’s politics, it is quite common to completely “cancel” a major party. I can assure you that this has a counterproductive effect. The problem is not (just) the AfD but rather the lack of a strong, alternative political centre where there is actually something to choose from. Yet another Große Koalition is living proof of this.
Magic
What concerns me most is that the likelihood of this coalition actually turning the economic tide seems slim. In recent years, the German economy has significantly lagged behind, due to, among other things, excessive bureaucracy, poor energy policy, and an overemphasis on climate policy. That is a lot of policy, which rightly raises the question of whether the same policymakers will suddenly come up with something entirely different this time.
Incoming Chancellor Merz is mainly talking about higher defence spending and reducing dependence on the United States. But how he plans to make Germany more competitive remains unclear—and that is precisely the biggest issue. A quick look at how German car manufacturers have been wiped out by Chinese electric vehicle producers is a painful example of this.
Debt brake
Moreover, the first contentious issue has already arisen, partly fuelled by increasing polarisation within the German economy. Will Germany finally abolish its masochistic debt brake, which is enshrined in the constitution, or not?
German politicians have repeatedly demonstrated little understanding of the international economic playing field. The era of budget discipline is long over. Those who do not take on additional debt do not grow. And those who do not grow fall behind. It really is that simple!
But even if one still pays attention to debt, a debt-to-GDP ratio well below sixty percent—once the holy grail of the Maastricht Treaty—still raises questions. If you then add the fact that Germany is part of an economic monstrosity called the Eurozone, where all policy must be aligned with the weakest link, Germany’s economic policy becomes indefensible.
Decisiveness
For a long time, I believed (and I still secretly do to some extent) that the European economic and political system, where everything progresses gradually without major recessions or political U-turns, was quite effective. But in Europe, this model has evolved into a monster of indecision, bureaucracy, inefficiency, and worst of all: ideology.
Europe suffers from a glaring lack of decisiveness, largely due to the overwhelming number of regulations. Everything in Europe must supposedly be “democratically guided,” which in practice means that nothing gets done. Perhaps I am being a bit harsh here, after more than a year of fighting against the hopeless, innovation-stifling regulations affecting my investment fund, but I do not think I am far off the mark.
So, when I see that after a significant political upheaval, the two parties that are at least partially responsible for Germany’s economic malaise and growing social discontent are scrambling to get back into bed together, I do not get the impression that much is going to change.
But perhaps I am wrong.
Jeroen Blokland analyses striking, current charts on financial markets and macroeconomics in his newsletter The Market Routine. He is also the manager of the Blokland Smart Multi-Asset Fund, a fund that invests in equities, gold, and Bitcoin.