Domestic Deadlock

Political Gridlock in Berlin

Kanzleramt Source Imago
Endless meetings, little action, at the chancellery in Berlin.
  • Why it matters

    Why it matters

    • The business sector was hoping for quicker action on amending Germany’s minimum wage law.
    •  
  • Facts

    Facts

    • Top players in the coalition meeting included Chancellor Angela Merkel (CDU), Sigmar Gabriel (SPD) and Horst Seehofer (CSU).
    • No breakthrough on building power lines from northern Germany to Bavaria as part of the nation’s energy transition.
    • More meetings of coalition leaders are planned for April and June.
    •  
  • Audio

    Audio

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This was supposed to be the year of business-friendly politics from Germany’s right-left coalition government led by Chancellor Angela Merkel’s Christian Democrats and their Social Democratic partners.

For businesses, it has seemed high time for the shift, after Ms. Merkel had endorsed several labor-backed reforms — including introducing the country’s first minimum wage and allowing early retirements at just 63.

But after a meeting of the coalition this week, it seems German business will have to keep waiting for a sympathetic ear from Ms. Merkel.

Party leaders appeared to make no progress on Tuesday to tweak the new minimum wage law, which employers say has created a bureaucratic monster. Negotiators also could not overcome Bavarian opposition to the high-power lines that are needed to transport the nation’s wind and solar electricity.

Party negotiators did manage to settle a dispute over limiting rent increases, promising to introduce rent controls in cities where the cost of living has risen sharply, but they postponed most everything else on their agenda.

“It is my fear that we are losing the connection between economic performance and social security here in Germany.”

Wolfgang Bosbach, Christian Democrat

Relations between Germany’s two largest parties have been strained since the grand coalition began at the end of 2013.

The Social Democrats, though the minority member of the coalition, have seemed to leave a greater to mark on the government — delivering a minimum wage and early retirement — to the ire of Ms. Merkel’s supporters.

Social Democrats have been determined to avoid the party’s fate in its first coalition with Ms. Merkel’s Christian Democrats from 2005 to 2009.  Back then, SPD voters dealt their own party a historic defeat in 2009 elections.

While last year was dominated by left-leaning priorities, many in the SPD have rejected party leader Sigmar Gabriel’s efforts to nudge Social Democrats to the right in a more business-friendly direction.

Mr. Gabriel, who is s deputy chancellor and economics minister, is backing a free-trade deal between the United States and European Union, which many in his own party oppose.

Ms. Merkel and Mr. Gabriel are to meet twice before the summer. In April, the two plan to focus on refining the newly adopted minimum wage law to rectify the bureaucratic burdens it has brought on some smaller businesses.

In June, they plan to discuss Germany’s transition to renewable energy.

Also in June, leaders will discuss reconfiguring the distribution of revenue between the federal and state governments.

“We agreed to make concrete decisions and set new perspectives by the summer break,“ said Volker Kauder, the CDU parliamentary leader.

Mr. Kauder’s attempt to sell the meager results of negotiations so far as a success did not go over well, even in his own party.

“It is my fear that we are losing the connection between economic performance and social security here in Germany,” said Wolfgang Bosbach, a Christian Democrat.

Mr. Bosbach brought up the nation’s energy transition as an example. More companies are investing abroad, he said, because the increasing cost of electricity in Germany is adding to the costs of factory production.

“It is capital that is exported first, then jobs, and finally prosperity and social security, said Mr. Bosbach.

The Social Democratic parliamentary leader, Thomas Oppermann, blamed the CDU’s Bavarian sister party, the Christian Social Union, for blocking the overhead power lines that are opposed in southern Germany but necessary to bring power from offshore wind parks in the Baltic and North seas.

“Bavaria needs affordable electricity too. We need more discussions about this in the coalition,” said Mr. Oppermann.

Horst Seehofer, Bavaria’s state premier and the CSU party leader, has said he will not make a decision on power lines to Bavaria until other energy issues are settled. Members of the economic reform group in Ms. Merkel’s party were disappointed by the meager results of high-level meetings so far.

“We can talk as much as we like about a path the economy should take. But it is apparent that the coalition is flawed,” said Christian von Stetten, a party spokesman on mid-sized companies.

Social Democrats were not interested in changing direction, he said.

“Limiting rent increases is just the wrong way to promote affordable accommodation in tight markets.”

Axel Gedaschko, President, federal association of housing and real estate companies

Carsten Linnemann, a CDU policy expert, also expressed frustration. “The modus operandi of the coalition is counterproductive,” he said.

Mr. Linnemann said he had hoped for some kind of movement on the minimum wage. “At least a concrete time schedule to show when and how bureaucracy can be decreased,” he said.

The deputy leader of the CDU/CSU parliamentary party, Gitta Connemann, was grateful that at least a review of the controversial law had been scheduled by Easter. “Welcome back to reality, is all I can say to the SPD,” she said.

Social Democrats, however, considered the summit a success on two fronts.

“Limiting rent increases is on its way, and nothing is changing with the minimum wage,” said the party leader, Mr. Gabriel.

The breakthrough on rent limits was important to SPD members.

“It was a triumph of good sense,” said Dennis Rohde, a member of the SPD’s legal committee. “Representatives of the CDU/CSU were unsuccessful in their attempts to undermine the limits on rent increases.”

The CDU/CSU had sought to exclude new construction and big renovation projects from rental limits.

A bill had languished after a first reading last November in the Bundestag, as both sides argued details – until Tuesday evening. Caps on rent price increases can take effect in April, to the dismay of property owners.

“Limiting rent increases is just the wrong way to promote affordable accommodation in tight markets,” said Axel Gedaschko, president of the federal association of housing and real estate companies.

Mr. Gedaschko said modernizing or building new residences in cities is beset by cost problems, which cannot be solved by new legal measures.

“New housing construction is the only effective method of countering the boom in demand in these areas and the resulting increases in rent,” he said.

The Institute of German Business in Cologne fears rent increase limits will make the tight housing market even worse.

 

Daniel Delhaes, Silke Kersting, Klaus Stratmann and Frank Specht contributed to this article. To contact the authors: delhaes@handelsblatt.com, kersting@handelsblatt.com, stratmann@handelsblatt.com, specht@handelsblatt.com.

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