Germany’s leadership gap

Mujtaba Rahman is the head of Eurasia Group’s Europe practice and the author of POLITICO’s Beyond the Bubble column. He tweets at @Mij_Europe.

Although Germany’s election results leave Europe’s largest economy in a state of uncertainty, the big picture is already clear: Whoever the next chancellor will be, neither Olaf Scholz nor Armin Laschet will be able to provide the European Union with strong leadership.

This is as much about their inherent political skills as the reality of the coalitions they will lead: made up of parties new to power, and — at the federal level — to each other. Internal friction and domestic politics will subtract from the chancellery’s focus and agency in Europe.

To make matters worse, while it is no surprise that Chancellor Angela Merkel’s departure was going to impact the bloc’s leadership and coherence, her departure coincides with the run-up to French President Emmanuel Macron’s own elections next year.

With the first and second round of presidential voting scheduled for April 10 and 24, and legislative elections in June, these will undermine the substantive policy impact Macron could have had when his country assumes the presidency of the Council of the European Union in the first six months of 2022.

With a lame-duck or weak government in Berlin, soon to be followed by the same in Paris, the EU will be bereft of strong leadership at a time when it could sorely use it.

In particular, there are three areas of European policy — a standoff with the U.K. over the Northern Ireland Protocol, a rule of law dispute with Hungary and Poland, and the need to reform the EU’s fiscal rulebook — that are crying out for a political steer.

Brexit collision course

The most immediate challenge that Germany’s interim or new government will face is Brexit. The U.K. is waiting for the EU to respond to its “Command Paper” from July, in which Brexit Minister David Frost set out a long list of demands to renegotiate the Protocol.

While the Commission is due to respond to Frost’s proposals imminently, it’s almost certain that Brussels’ attempts to placate the U.K. won’t go far enough. This will certainly be the case regarding London’s attempt to scratch the European Court of Justice from policing the Protocol but will also extend to other areas too.

So far, both Scholz and Laschet have said very little about Brexit, beyond the EU’s oft-used line that they trust the Commission, which remains in the driver’s seat. On Monday, Scholz did use a question about the U.K.’s HGV driver shortage to make a quip about fair wages. But the standoff could get very political, with both Frost and Prime Minister Boris Johnson increasing the temperature ahead of the Tory party conference on October 3-6.

Both Frost and Johnson have insisted in public, and argued in private, that the threshold for triggering Article 16 has been met. Indeed, it’s very possible the government may take the decision to do this next week, throwing red meat to the party’s Euroskeptic base while putting both the opposition Labour party and the EU in a very difficult situation, and conveniently distracting from the fuel and labor shortages at home.

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While it would not be automatic, and negotiations would follow, this could put the two sides on an escalating trajectory where trade retaliation becomes inevitable. Neither Scholz nor Laschet has taken a view on this issue, nor provided any indication that they would work to resolve matters as dispassionately as Merkel did.

Though Merkel will still likely be in charge in a caretaker capacity when this sets off, the vacuum in Berlin and Paris risks letting the problem escalate.

Rule of law showdown

While perhaps not the most explosive, the most complex challenge Germany’s new chancellor will face will be over rule of law issues in Poland and Hungary. Regardless of who leads the next government in Berlin, there is a perception that “Merkel let this issue get out of hand,” according to one well-placed senior German official, and that Germany now needs to “course correct.”

This pressure in Berlin will complement developments in Brussels, where the Commission finds itself under increasing pressure from the European Parliament to take a stand against both member countries not to disburse monies allocated to them under the Recovery and Resilience Facility.

But the Parliament’s case is not as legally tight as MEP’s would have everyone believe. As one adviser to an EU head of state puts it: “We are now giving the EU a role and competence it does not have — to judge constitutional issues in member states.”

“In spite of a lot of propaganda in the Parliament, the EU does not have a real rule of law mechanism, but an anti-fraud mechanism,” the adviser said. “It is a protection for EU taxpayers. But the political debate in the Parliament is unhinged — not about the misuse of EU funds but the general state of politics in Poland and Hungary.”

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Merkel always managed to keep the EU united, albeit at the expense of some principles she claimed to have; how effective a weak Scholz and Laschet will be at navigating this fine line — the EU’s tenuous legal grounds combined with strong opposition from Warsaw and Budapest — remains quite unclear.

But some escalation seems inevitable, especially when it comes to Hungarian Prime Minister Viktor Orbán, who is perceived to have crossed too many red lines. No doubt, he will also be looking to take a strong stand against Brussels ahead of elections in his own country next April.

Spending standoff

Perhaps the most consequential challenge Germany’s new chancellor will face relates to EU fiscal policy. With the Stability and Growth Pact due to come back into force in 2023, member countries must decide early next year whether and how they wish to revise the rules.

Here the choice of chancellor could make a difference — but probably not a big one. Laschet is a Merkel-style soft conservative, unlikely to want to push too hard for reform. But while Scholz is no fiscal hawk, he is also pragmatic. With the liberal Free Democrats (FDP) likely playing a key role in his government — its leader Christian Lindner is widely tipped as the next finance minister — he will be reluctant to fundamentally overhaul the Stability and Growth Pact.

This is especially true, as the FDP will be forced to sign off on more spending at home, by using off-budget investment funds and repurposed borrowing from this year, while paying lip service to Germany’s constitutional debt brake.

With pressure from his own finance minister, Scholz will also be less effective at standing up to strong-minded Northern European member countries, especially the Netherlands, which are pushing hard for a full reimplementation of the pact in 2023 — not in the belief that it will happen but to provide the baseline from which negotiations must take place.

As one senior EU official told me: “The room for something really new and sensible is much smaller than people think.” Another concurred: “The risk of disaster is higher than the probability of success.”

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The time crunch under which this debate will take place adds to the risk. The European Commission will need to provide guidelines to EU capitals drawing up their budget plans by mid-April, but senior officials in Brussels, Paris and Berlin no longer expect the new German government to have a strong position on EU fiscal policy before January — leaving little time to iron out a potential deal.

One thing is certain. As much as he might be tempted to try, the next chancellor won’t have the luxury of ignoring the EU’s most heated debates. Once he is seated, the demands and logic of office will force either Scholz or Laschet to take hold of Germany’s innate importance and advance its interests in the bloc.

How effectively they will do this remains far from clear.

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