What the new German government has in store for Europe
Three-party coalition agreement pledges some progress on climate goals and banking union
The wait is over. Germany has a new government, Olaf Scholz is set to become chancellor, Christian Lindner from the pro-business Free Democrats scoops up the finance ministry, Green leader Robert Habeck will be the minister for economy and climate, with co-leader Annalena Baerbock as foreign minister.
I’ll unpack what the coalition agreement has to say on EU topics, including the banking union, rule of law and why the Greens got in a bit of a pickle over the future of European Commission chief Ursula von der Leyen.
We’ll also explore an ill-timed commission snipe at Italy’s draft budget and what it means for sensitive eurozone discussions on fiscal rules reform.
The largest group in the European parliament, the centre-right European People’s party, meanwhile, selected Maltese MEP Roberta Metsola as its candidate for the leadership of the parliament in January.
On the financial regulation front, the EU yesterday agreed to further postpone a set of rules on trades that fail to settle — which were agreed in late 2013 and were due to kick in beginning of February (More here).
In anti-vaxxer news, we’re exploring how the far right in Austria is fully embracing the conspiracy theories that have led to a spike in poisonings in the US from horse de-wormer Ivermectin.
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More evolution than revolution
With its 178 pages, the new German coalition agreement continues the tradition of lengthy pacts (the previous coalition accord was 175 pages long). On the content, the deal is also continuity rather than radical change.
The most significant policy shifts from the previous coalition government led by Angela Merkel’s Christian Democrats seem to be headline-grabbing measures such as the legalisation of cannabis for recreational use and the lowering of the voting age from 18 to 16. But on Europe, you’d be hard-pressed to detect huge differences. Here’s a look at what matters:
- Coal and cars: Meeting the climate targets in the Paris climate accord is “the highest priority”, reads the coalition agreement. If the outgoing government was lukewarm on phasing out combustion engines, the new government wants 15m electric cars on German roads by 2030. An exit from coal-powered energy plants and the closure of coal mines should also “ideally” happen by 2030.
- Carbon leakage: Germany will develop an industrial strategy linked up to the European Green Deal and wants to avoid carbon leakage. Even though the new government supports an EU-wide carbon border adjustment mechanism (CBAM), it says the format for making importers pay could follow so-called Carbon Contracts for Difference, which the German government is likely to introduce for the country’s industrial suppliers.
- Club climate: Germany wants to use the EU and other international forums to create an “international climate club with a common minimum CO2 price and a common CO2 border adjustment”. Berlin will also introduce minimum quotas for climate-friendly products in its public procurements.
- Banking union: The three parties pledged to complete the EU’s banking union, including a European reinsurance system for national deposit guarantee schemes “where contributions are strictly differentiated based on risk”. But, in keeping with the traditional German position, “a full communitarisation of the deposit guarantee systems in Europe is not the goal”.
- No perma-fund: Despite the emphasis on investments for the twin green and digital transformation, the new German government takes a leaf from the old in insisting that the bloc’s €800bn post-pandemic borrowing spree is “limited in time and size”. Several countries including France have started toying with the idea of expanding the recovery fund and making it permanent.
- Rule of law: Poland and Hungary are not off the hook. The new German government will approve the commission’s recommendations on EU recovery plans only for countries where “preconditions such as an independent judiciary are met”.
- Frenemies with China: The new government continues a multiple-track approach to Beijing: co-operate wherever possible, insist on a level playing field and develop a German strategy for China that is part and parcel of EU’s own policy towards the Asian giant, as well as in co-ordination with the US and other like-minded partners.
- Russia, it’s complicated: German-Russian relations are “deep and multi-faceted”. Beyond a desire to co-operate with Moscow on climate, health and hydrogen, the new government does acknowledge “the interests of our European neighbours, especially our partners in central and eastern Europe. We will take into account various threat perceptions and focus on a common and coherent EU policy towards Russia.” Critical references to Nord Stream 2 that the Greens had made in their party manifesto have gone.
- Green commissioner: Before even announcing the new accord, Green politicians took to Twitter to make public one significant win: their party will nominate the next German EU commissioner. This led to a flurry of speculations that the new government will no longer support Ursula von der Leyen for a second term at the helm of the European Commission. In the end, the agreement states that the Greens will nominate a candidate only if the commission president is no longer German. When asked about it in the news conference, Olaf Scholz said the coalition agreement described “future cases”, in “terms as friendly as possible”.