How Can Merkel Transform Germany’s Economic Woes?

Concerns about an economic crisis affecting the eurozone have reignited after it hit a seven-year low on Friday, which will have an impact on the EU. Germany’s economy stagnated while both France and Italy contracted in the last quarter. The chances of a recession increased after the coronavirus dealt an economic blow to the eurozone.

The EU has experienced its weakest economic growth since 2013, with a rate of 0.1 percent. The last time it was this low was when the debt crisis risked a European recession.

Germany’s growth rate failed to meet expectations and was down from an upwardly revised 0.2 percent in the third quarter.

As German Chancellor Angela Merkel nears the end of her chancellorship, this news could not come at a worse time. As Politico’s Matthew Karnitschnig argues, the economy has been key to her longevity. Until now, German output has grown in all but one of her 14 years in office, stuttering only during 2009 when the 2007-09 Recession was at its worst. Growth has been steady, but modest, reaching a 1.6 percent average during her tenure.

Germany’s latest economic results will be felt across the continent. Finance Minister Olaf Scholz has repeatedly resisted calls for a financial stimulus from industry leaders. However, what Merkel needs to demonstrate during her last months as Chancellor is leadership. There are many challenges facing her country and if she wants to secure a legacy, she must use what time she has left to address them.

When Gerhard Schröder was Chancellor until 2005, he implemented a series of welfare and labour reforms as part of his ‘Agenda 2010’ vision. By the time the 2008 Recession started, the German economy quickly recovered thanks to German cars and machinery being exported to China. It now has the world’s largest trade surplus. But the reason why there is a lack of an economic vision from the Christian Democratic Union of Germany (CDU), Merkel’s party, is because they have been in power for too long. This is why new leadership is needed.

Annegret Kramp-Karrenbauer, the politician seen as the Chancellor’s successor, announced on Monday that she would step down from the CDU chair. In response, the Social Democratic Party (SPD) has said it could quit the governing alliance if Merkel is forced out of office. If the CDU hope to retain power, they should solve their internal battles so that they have a chance of getting re-elected with a new vision for a new decade, especially with the AfD rising in popularity.

One problem Merkel faces is Brexit. With Boris Johnson insisting that a trade deal must be sorted by December, Merkel must urge her European counterparts to demonstrate some flexibility in providing Britain with a deal that benefits both sides. A no-deal Brexit would damage German automotive companies like BMW, which produces 60 percent of its Mini vehicles at the company’s Cowley plant in Oxford.

The Chancellor has been trying to resolve trade tensions between the EU and the US since last year, and this is damaging Germany’s economy in the long-term. Last month, US President Donald Trump and the EU promised to continue with negotiations to secure a trade deal between both sides. Germany’s industrial output has dropped by 1.5 percent since June and is now down 5.2 percent year-on-year, with Trump’s tariffs being identified as a central reason for that. Ending this crisis will be a positive outcome for Merkel and for Europe.

Dealing with these problems is the only way Merkel can secure a positive economic legacy during her final days in office. It remains to be seen in the coming months whether she still has the political will to solve them.