Lessons from Germany: coalition challenges and economic stagnation threaten future governance

Last week was a particularly tough one for Germany, even compared to the turbulence of recent years. On Wednesday, the ruling three-party coalition government collapsed, likely setting the stage for early national elections next year. Just hours earlier, Donald Trump secured a victory in the US presidential election — a development that could further destabilise the already fragile liberal democratic order on which Germany has relied for security and prosperity since 1945. To add to the turmoil, authorities revealed on Tuesday that they have uncovered yet another far-right plot aimed at undermining German democracy.

However, Germany’s current woes are the latest manifestation of longer-term, structural issues. Once celebrated for its productivity, growth, and fiscal discipline, over the past three years, Europe’s largest economy has slipped into crisis. As economist Wolfgang Münchau discusses in his recent book, Kaput: The End of the German Miracle, the country’s export-driven growth model is broken.

Since late 2021, Germany has seen little to no real GDP growth each quarter, and annual GDP is on track to decline for a second consecutive year. Industrial production, excluding construction, peaked back in 2017 and has since dropped by 16%. Recent data also shows that corporate investment has fallen in 12 of the last 20 quarters, reaching levels not seen since the early pandemic. Economists predict German GDP will grow by just 0.8% next year, the lowest among the world’s 20 largest economies. Meanwhile, according to Germany’s statistical agency, cautious German consumers are now saving 11.1% of their income — double the rate of US consumers — further slowing economic activity.

Three factors have combined to cause this malaise:

1. The cheap energy from Russia that fuelled the German industrial machine swiftly came to an end when Putin’s tanks rolled into Ukraine. Average electricity prices for industrial users in Germany are almost $300 per MWh, according to Bloomberg. Roughly three times the equivalent in the US, and four times China.


2. A changing relationship with China lies at the heart of Germany’s current economic challenges. China’s shift from being a lucrative import market to a major global producer and exporter is straining Germany’s economic pillars. While China accounted for 8% of German exports in 2020, this figure is expected to drop to 5% this year. “Chinese manufacturers have become competitors instead of importers of German capital goods,” explains DWS economist Elke Speidel-Walz.


3. Finally, Germany suffers from chronic under-investment. Its once state-of-the-art infrastructure that was the envy of most developed countries is collapsing. Trains are notoriously unreliable, autobahns are crumbling, schools are falling apart. This columnist can attest to the dire state of even Berlin’s comparatively new airport. Investment is needed but because of the country’s “debt brake” of running budget surpluses, which is enshrined in the constitution, it is politically prevented from doing so.

 “We need to invest large amounts quickly,” said Jens Südekum, professor of international economics at Düsseldorf’s Heinrich Heine University. “That is impossible with the current debt brake.” Without a reform of the rule, he said “Germany will become impossible to govern”.

While the implosion of Scholz’s government creates the opportunity for the next government to try and reform the constitution, it remains to be seen if the conservative CDU — who are likely to win the snap elections — will be willing to risk changing something that they created in the first place.

Read more: Why South Africa’s democracy is working better than the US

Ironically, last year leaders of South Africa’s ill-fated Multi-Party Charter visited Germany to learn from its coalition governance model, with John Steenhuisen reflecting enthusiastically on those lessons. Now Germany might serve as a cautionary example for him and President Ramaphosa, given that they are in government together.

Three lessons are apparent:

1. Economic growth is almost essential to a coalition government being able to function effectively and constructively. During the Merkel years, when the German economic machine was powering along like a Porsche in the fast lane of a 1990s autobahn, government frictions were few and far between, even on topics as tricky as the 2015 immigration crisis. However, since the economy started spluttering and then stalled, the current three-party arrangement has been at loggerheads, beset with infighting on how to get it started again. That brings one to the second factor.


2. The federal republic has, for much of its post-war existence, been governed by two party coalitions, typically either centre right and centrist or a “grand coalition” of centre right and centre left. Given the recent fragmentation of German politics this was no longer possible after the 2021 elections, so a “traffic light” coalition (red for centre left, yellow for centrist FDP and the Greens) was attempted. This, in practice, has been almost unworkable.


3. If two parties in a coalition is company, three is a crowd. It remains to be seen what the 10 parties in the GNU are, and how they will co-exist in such a power-sharing arrangement. If it collapses, it is worrying to think that a two-party arrangement between the ANC and MK could endure for longer.

Finally, effective leadership is critical. While Merkel had the advantage of a stable backdrop, she was clearly the guiding force throughout her tenure. Olaf Scholz has lacked charisma, imagination and direction from the outset. To corral the various forces within a coalition takes more than political guile; it demands a clear vision that can unify diverse factions under a common purpose.

For South Africa’s government to succeed, President Cyril Ramaphosa would do well to take inspiration from Merkel’s reign rather than Scholz’s. DM