Diesel ban?

New German government faces slew of unfinished business

Braunkohletagebau und Kraftwerk im Hintergrund Rheinisches Braunkohlerevier Deutschland Nordrhein
Among the issues facing the new government: when to end coal-fired electricity. Source: xblickwinkel/S.xZiesex

It’s been more than five months since the German elections reached no clear decision, leaving many offices of the interim government paralyzed by uncertainty. Now that Chancellor Angela Merkel has finally achieved a coalition agreement with the Social Democratic party, the new government is faced with a full plate of burning issues that have been allowed to languish on the back burner.

Just a few of the most important issues that must be decided soon: the proposed Eurozone deposit insurance plan and European Monetary Fund to help countries facing an economic crisis, whether to increase defense spending and by how much, how to cope with the escalating crisis over diesel cars now that a court has ruled cities can ban such cars to reduce pollution, and Germany’s dithering on ending coal-fired electricity plants.

Ms. Merkel presents her government to parliament on March 14 for swearing in and then will give a speech outlining her agenda the following week. While much of the agenda was agreed in drawn-out coalition talks between Ms. Merkel’s Christian Democratic Union and the SPD, there are some large grey areas that weren’t covered.

The new finance minister is already in a political corner over European policy.

One of the most important changes will come with a new finance minister. The last permanent finance chief was Wolfgang Schäuble, a politician renowned for his embrace of austerity, who stepped down to become president of the Bundestag, the parliament. His replacement is Olaf Scholz, the mayor of Hamburg and an SPD heavyweight.

Not even sworn in yet and Mr. Scholz is in a tight corner politically. On the one hand, the SPD has promised to ease back from Mr.Schäuble’s austerity hard line on European policy. But at the same time, Mr. Scholz knows that the hardline was popular in Germany and he needs to avoid being painted as someone who spends Germany’s money lavishly on spendthrift European politicians and policies.

European monetary reform

Two key issues have been on hold awaiting the outcome of the coalition talks on which Mr. Scholz will now have to take a stand within days of taking office: the proposed European deposit insurance plan and the European monetary fund. Last fall, Mr. Schäuble repeated his opposition to the deposit insurance plan, which is part of an overall European proposal for a banking union by the end of this year. Supported by France and Italy, the plan would elevate bank bailouts to the European level so that no country has to bear the cost of rescuing a failed institution on its own.

The European Commission has also proposed converting the European Stability Mechanism, a bailout fund to help struggling countries, into a monetary fund with wider functions such as being a lender of last resort when banks across the union go into crisis.

Diesel Crisis

The diesel crisis has become a huge problem for the government following a decision by Germany’s highest administrative court that cities can ban cars to reduce pollution levels. It seems likely that Stuttgart, Munich or Dusseldorf may go ahead with a ban. The government must decide how to implement such restrictions: by offering cars different colored plaques that indicate their level of pollution to help implement a partial ban? Or by forcing car companies to retroactively install expensive hardware updates to reduce pollution, a step the firms have vehemently opposed? The government hopes that a clean air program calling for spending €1 billion ($1.2 billion) on electric buses and municipal vehicles will reduce pollution enough to avoid driving bans.

Coal-fired electricity

Another headache is the need to take a decision on when Germany, which has promised to abide by the Paris Climate Accord, will end the coal-fired electricity generation. The coalition has promised to deliver a roadmap to a ban by the end of the year. But with Germany turning off the nuclear power generation as well, there are fears in the industry that there won’t be enough electricity to keep the country’s factories humming.

Defense Spending

There is also a question of defense spending. Ms. Merkel has vowed to increase spending to 2 percent of GDP as demanded by President Trump, but the SPD has not signed off on such a large increase. The current defense minister, who is from the SPD, also wants to expand the country’s role in Iraq.

It will take political will on all sides to resolve some of these difficult questions, which were left hanging by the last grand coalition for a good reason: the two sides simply couldn’t agree.

Several Handelsblatt correspondents contributed to this article. It was adapted into English by Charles Wallace, an editor for Handelsblatt Global in New York. To contact the author: c.wallace@extern.handelsblatt.com.


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