Germany: The defeat of Merkel

By October 24, 2018 No Comments

The German growth model needs changing

We travelled around Germany over August and September to get a range of perspectives on the government and voters’ aspirations about the future.

The downturn in the coalition’s approval rating reflects a broad perception that purchasing power is stagnant for most people and that the country is going in the wrong direction: it is underinvesting in areas that are valuable for the long term, such as education, healthcare and the environment. Chancellor Merkel continues to command the respect of many, but the coalition is perceived as inactive and often uninterested in the livelihoods of most.

Most voters want change – but not abrupt change, this underpins the strength of the Green party currently. The expectations of the electorate for a new coalition formation are high: more effectiveness in policy making; more public spending; and higher minimum wages. These are not simple things to deliver, and we are concerned that the Green party will not be able to match up to expectations in the next few years.

Our investigation shows that there is a high ideological attachment to the European Union. Not everyone claims to see its benefits, but a solid majority would vote REMAIN in a hypothetical referendum on EU membership. At the same time, there is also a noticeable majority in favour of a more active debate on the merit of the European Union: debate is seen as a way to accentuate the positives of the Union, as well as for venting complaints, and fostering the environment to reach an agreement on how the EU should change. Voters’ support to REMAIN should not be seen as an excuse to avoid reforms of the Union in the coming years, in our view.

Somewhat to our surprise, people’s assessment of the ECB in recent years is positive overall, but the persistently low interest rates are problematic for many, especially as there has been a serious backlash related to the currently high housing costs.

People across incomes, geographical locations and ages all seem to raise the same three issues: the labour market is very tough; there should be more support for SMEs and start-ups; and investment in education must increase. Surveys show low perceived household savings buffers, and our investigation indicated that savings are indeed low for the poorest income bracket and the upper middle class (the III and IV quintiles in the income distribution), especially if they have children.

In our view, the feedback we collected during this survey, together with the results we gathered a year earlier, should ring serious alarm bells. The extent of the discontent among German voters signals that the growth model supported since the Schröder government, based on strong exports and labour market flexibility, does not work for many, notwithstanding the high social protection concentrated around the very low income earners. We stress that the electorate of AfD is varied, and the party is well-positioned to continue to gain significant approval ratings in the coming years.