Heiner Flassbeck – German Coalition Agreement: No new beginning, no dynamism, no cohesion, just the same old mercantilism

The Grand Coalition Agreement in Germany contains of a lot of words, yet little content. It does not fulfil what it promises, but is simply a programme for the intensified continuation of German mercantilism.

Heiner Flassbeck is an economist, as well as publisher and editor of “Makroskop” and “flassbeck economics international

Originally posted in German at Makroskop

Translated and edited by BRAVE NEW EUROPE


The Grand Coalition Agreement between Angela Merkel’s Christian Democratic Union (CDU) and its Bavarian partner Christian Social Union (CSU) and the Social Democratic Party (SPD) is impressive alone due to its enormous volume (you can see it here). With almost two hundred pages, you can be sure that many SPD-members will tell each other that where so much work by our best talents has gone into it, it can’t be wrong. If one then reads the euphonious preamble, one is firmly convinced that the Agreement is a work in which social democratic values are prevalent and strong.

Even the fine and not even incorrect phrase, which every available SPD-representative says in every available microphone, does not miss the mark: the new grand coalition will improve the living situation of many German citizens. Consequently, SPD members will vote for the Grand Coalition, if only the current chaos in the party can be forgotten by then. But a positive assessment of the Coalition Agreement, based on a claim it contains many minor improvements, is an egregious mistake.

The Agreement correctly states that in Germany and Europe we are entering a phase of a new beginning, dynamism, and cohesion. But with regard to all three of these, the Agreement offers nothing. If one reads a little more closely, one quickly realizes that the Agreement simply continues in the spirit of the past. Particularly with regard to cohesion and Europe, where the Social Democrats have made a vociferously bold commitment to change and renewal, it is impossible not to denounce the Agreement as a deception.

Why is the Agreement so voluminous?

First of all, it must be said that the length of this Agreement is not proof of quality and thoroughness, but of sheer lack of imagination. Such a voluminous work resulted from the fact that the current government asked all ministries (and all their departments) to make updates for the next four years on the basis of the work done so far, which, where appropriate, also takes into account the election programmes of the parties to be involved in the new government. As a result, countless civil servants sat down and wrote what they considered sensible and possible in view of the political situation in their respective fields. This resulted in a stack of papers that the parties sorted according to topic, before examining the contents to figure what might suit their programmes and what not.

This process alone brings about the opposite of a new beginning, because it is explicitly “piecemeal engineering” (Karl. Popper), i. e. the avoidance of major policy changes in favour of the continuation of the current one. Those who really want a new start and dynamism would have sacrificed all the hundreds of tiny details contained in the Agreement in favour of a political vision that can be explained in just a few pages.

However, the astonished reader learns that Germany has taken the initiative and will finally create “nationwide regulations for the certification of hunting ammunition with an optimal killing effect and simultaneous lead minimization” and pass into law “a shooting practice certificate for hunter and falconer training and testing”. How progressive! Nor did our law books up to now contain “burglaries in animal stables are effectively punishable as a criminal offence”. For those who cannot be bothered with all these details, it is enough to read the few programmatic sentences in the preamble and in the introduction concerning European issues.

Honourable goals…

There you will find at first glance impressive sentences like the following:

“Our goal is sustainable and inclusive growth, which benefits everyone. We want to mobilise the creative potential in Germany and exploit the opportunities offered by digitalisation. Germany needs economic and social progress in which everyone is a stakeholder.”

“We want prosperity that benefits all citizens. The recent election results have shown that many people are dissatisfied and insecure. With this Coalition Agreement and its policies, we draw the appropriate conclusions. We want to secure what is good, but at the same time we want to demonstrate our desire for political debate, renewal and change.”

“The social market economy, which is based on corporate responsibility, social partnership, co-determination, and a fair distribution of the wealth, needs a renaissance, especially in these times of digitisalisation.”

One wonders why the new grand coalition does not say a word about the inequality that exists in Germany today, and how it intends to ensure that all people will be able to participate in future benefits. However, anyone who acts as if it were only a matter of not allowing inequality to become greater in the face of acute inequality is using the same sleight of hand that is constantly being used by German mainstream economists.

…. but no change.

Instead of honestly asking what the redistribution of the past few years has brought or has not brought or about – including the question of declining investment by companies – the parties assert that they want to do everything better in the future and not tolerate a further increase in inequality. In this way, you can completely avoid addressing redistribution that would be absolutely necessary in view of the distribution from poor to rich in the past 20 years. Similar to German journalism, the SPD has become a smoke screen of neo-liberalism.

It is also fitting that they do not want to acknowledge the crucial differences that fundamentally distinguish our present “market economy” from the famous “social market economy” of the first two decades of the Federal Republic of Germany. One cannot seriously speak of a renaissance of social market economy, if one ignores the fact that today’s companies in Germany play a fundamentally different role than in the times of the so-called economic miracle. Today, companies have not only become the winners of the redistribution of past decades, but they have become net savers instead of being the most important net debtor. As a result, they have become a sector of the economy that does not, as in the past, help to solve the crucial problem of every economy, namely stimulating investment activity in spite of other sectors being net-debtors. No, companies as a whole have joined the savers, which makes it clear that they did not deserve redistribution in their favour.

In this situation, as the new coalition intends to do, adhering strictly to the black zero, i. e. to a state that also assumes the role of net-saver, logically only one option is left to solve the problem of saving and indebtedness. You have to produce export surpluses until it “squeals”, to use a catch phrase of the SPD.

Mercantilism as policy

If something stands out in this Coalition Agreement, then it is the explicit continuation of German mercantilism cost what it may. Here an example:

“We also want to secure our international competitiveness in the future. Germany needs a globally competitive tax system. Open markets and free and fair trade are the basis for growth and employment, and we reject protectionism. We are committed to a rule-based multilateral trading system within the World Trade Organization.”

Here another:

“We want to strengthen the EU’s competitiveness and its growth potential in the context of globalisation in order to secure and create future-oriented jobs in the EU: This is the basis of our future prosperity.”

In the world of the new Grand Coalition, growth and employment can only be achieved through  trade  as a result of improving competitiveness. This is pure mercantilism. Thus it is not surprising to find the word “competitiveness” in this Agreement 25 times. To put it bluntly: German policy is protectionism pure. It is a policy of increasing exports through wage dumping.

The fact that the German mercantilist recipe is to be applied to the whole of Europe does not make it any better. It is an expression of the intellectual inability of the entire political elite in Berlin to understand that there is nothing in the world comparable to European mercantilism  and that the USA will respond to this – and rightly so – with massive restrictions on trade.

As a result on the one hand Germany will use this European mercantilism to restrict the necessary dynamics of domestic demand and, despite its long-winded commitments to Europe, will continue to pursue the policy of exporting unemployment to neighbouring European countries and the rest of the world. When you search the Agreement for the word “Europe”, there are more than a hundred results, but you will not find “European Monetary Union” or “EMU”; nor will you encounter the word “imbalance”, “trade imbalance”, or “current account surpluses”. In other words, German mercantilism is seen as the recipe for Europe instead of understanding that a huge closed economy like EMU has to rely on domestic demand.

The words of Sir Thomas Mun, former Director of the East India Company, could have been put directly into the Agreement: In his England’s Treasure by Forraign Trade of 1664 Mun wrote:

„The ordinary means […] to encrease our wealth and treasure is by Forraign Trade, wherein wee must ever observe this rule; to sell more to strangers yearly than wee consume of theirs in value.”

Germany is against wage dumping by others!

All of this could still be dismissed as the usual German trade ideology, but then comes a statement that shows in all clarity, how unscrupulously and cold-bloodedly the Agreement executes German corporate policy:

“We want to develop a framework for minimum wage regulations and national basic insurance systems in all EU member states. Anyone who consistently fights wage dumping and social inequalities in economically weaker countries in Europe also secures the welfare state and the social market economy in Germany “.

That takes the prize. Germany, the largest wage dumper of the century, presumes to take action against social inequality in economically weaker countries and their “wage dumping”. And this in order to secure the welfare state in Germany! Mind you, wage dumping in poorer countries does not mean that wages in those countries, as in Germany, lag behind productivity, but only that wages are low because of the low productivity there. By the way, these sentences are apparently also accepted by the German Federation of Trade Unions, whose leader has publicly recommended that the SPD members vote in favour of them.

This Agreement is destructive. Even if it should slightly improve the situation of ordinary German citizens with many small measures, there can be no doubt that the direction of economic policy will cause a great deal of damage in Europe, the political and economic consequences of which will sooner or later fall back on Germany. The SPD has already lost almost all credibility in terms of inequality, social cohesion and economic policy. If the party signs this Agreement, we must hope that at the next elections it will get close to the five percent of votes casted that are necessary for a political party to enter the Bundestag.


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