Hannah Zhang World

Angela Merkel Stepping Down — Economic Stability at Stake?

The German economy is at stake as Angela Merkel steps down as party leader. Her successor AKK, though often depicted as a “mini Merkel”, doesn’t make life easier.

By: Hannah Zhang

The German economy is at stake as Angela Merkel steps down as party leader. Her successor AKK, though often depicted as a “mini Merkel”, doesn’t make life easier.

On October 30, the German chancellor and the leader of the Christian Democratic Union (CDU), Angela Merkel, announced that she would not seek re-election as the party leader in its annual convention that would take place in December. Although she proclaimed her desire to stay on as chancellor through 2021, the move “makes her a lame duck who may not survive two more years”, since it is almost clear that she has steered her political attention away from enhancing domestic policies to preparing the so-called “mini-Merkel”, Annegret Kramp-Karrenbauer, as her successor. If that is the case, then the woman entitled as the first female chancellor in German history, also the longest-serving incumbent head of government in the EU (or even the longest-serving post-WWII chancellor, if she is to finish out her term), has finally brought her own political career to an end.

It is time, then, to evaluate the gaping hole in German or even European economy that is already at stake due to the recent migrant crisis. It is indisputable that while Europe remains the most-impacted continent after the 2008 economic recession, Germany restores its economic vitality almost like a miracle under Merkel’s administration. In 2005, when Merkel just took over the mess from Gerhard Schröder, the unemployment rate in Germany reached over 11%, hitting its peak in the 21st century. Under Merkel’s economic reform, however, the unemployment rate decreased drastically to 7% in the mid of 2008, showing a 33% decrease that far surpassed the EU average. Even after the economic collapse, Germany bounced back way faster than its European neighbors and even declared a 3.4% unemployment rate in August 2018 as its lowest historical record.

Picture2
 Unemployment rate, World Bank, July 6, 2018

Such an economic boom would never be possible without the Merkel Plan, which focuses on the implement of Kurzarbeit, or “the short-work policy”. Proved to be one of the most effective remedies for the economic recession, the strategy produces a win-win for both employers and employees by encouraging companies to trim the work hours of all employees instead of laying off millions of German workers. The government also benefits from the policy as it protects financial stability by preventing the social ills that accompany layoffs such as home foreclosures, drug addiction, domestic violence and so on. As a result, the short-work policy not only reduces the decline in consumer spending (since the households have more leisure time) but also keeps the workforce intact and ready for an economic upswing.

The future economic stability after Merkel’s administration, however, is not absolute even with AKK (short for Annegret Kramp-Karrenbauer, the successor whose name even some Germans find it hard to pronounce) replacing Merkel as CDU’s party leader on December 7, 2018. Although often depicted as “mini Merkel,” AKK has reportedly been trying to distance herself from Merkel. Kristina Dunz, a journalist who wrote the biography for AKK, has also commented that AKK is not at all a replica of Merkel, let alone being “mini” in any sense. Brought up in a Catholic family in southwestern Germany, AKK is perceived as “tougher and more conservative than Merkel,” especially when it comes to the immigration crisis which has stricken Germany since 2015. In early January, AKK announced that she was looking forward to a “comprehensive review” of the immigration system at a planned workshop in February, despite Merkel said before that “it would be a complete waste of time” to talk about what happened in 2015. For AKK, a review is indispensable if CDU wants to “approach the issues comprehensively.” If this is the case, then a tightening immigration system is pending in Germany and even in Europe as a whole.

Even if AKK is not to replace Merkel as German chancellor in 2021, it is almost for sure that the next chancellor — be it AKK or any other party leader — will adopt a more conservative strategy to tackle with the heated debate on immigration, the impact of which on a large economy has always drawn great attention from economists, policymakers and alike. The US, for example, has long served as a reference for those who need to access their own immigration policies. Though the majority of American scholars acknowledge that an influx of immigrants would result in an economic boom in the long run, as it generally brings valuable human capital to countries trapped in the aging population and low birth rates, they also admit that it could convey certain social ills if the speed of immigration surpasses the pace of cultural integration. According to Peter Neary, an economist specializing in international trade, “poor integration could lead to social unrest” that outweighs the economic benefits that a large and sudden influx of immigrants could bring. It turns out that Peter Neary is not just being alarmist. According to a research that tracks 130 years’ worth of US immigration data, “doubling the number of residents with ancestry from a particular country would increase the probability of foreign direct investment from that country by 4%”. However, the increase of such investment often takes decades or even generations to happen, and the US should not be a perfect immigration model for Germany as they differ significantly in land area per capita and social welfare systems. Ranked #184 worldwide as the least crowded country (while the US ranks #64), Germany has a less amount of land area per capita than China, and it also holds a free-for-all health care system that should cost its government a lot more than other western countries that welcome immigrants. For this reason and such, Germany faces more challenges when it intends to invigorate its economy by accepting more immigrants. Its economic stability, therefore, is at stake no matter what the next move would be.

References:

1. Angela Merkel’s Exit Is Bad News for Europe https://reason.com/archives/2018/10/30/angela-merkels-exit-is-bad-news-for-euro

2. Angela Merkel’s legacy as saviour of the German economy may be more down to luck than strategy https://www.independent.co.uk/voices/angela-merkel-stepping-down-german-economy-jobs-manufacturing-gdp-a8616141.html

3. Angela Merkel’s Exit Is Yet Another Blow to European Stability http://nymag.com/intelligencer/2018/10/merkels-exit-blow-to-european-stability.html

4. Why Merkel Must Go https://www.nytimes.com/2018/07/05/opinion/angela-merkel-germany-immigration-european-union.html

5. German jobs market hit record in 2017 https://www.dw.com/en/german-jobs-market-hit-record-in-2017/a-41996084

6. Amazing Germany’s Declining Unemployment: How Do They Do It? https://www.laprogressive.com/amazing-germany/

7. Does German Conservatism Have a Future? https://www.nytimes.com/2017/11/03/opinion/merkel-spahn-christian-democrats.html

8. Annegret Kramp-Karrenbauer: Who is the new leader of Germany’s CDU?https://www.bbc.com/news/world-europe-46474381

9. Angela Merkel’s CDU set to review her migration policy https://www.dw.com/en/angela-merkels-cdu-set-to-review-her-migration-policy/a-47062391

10. How immigration boosts foreign investment http://review.chicagobooth.edu/economics/2016/article/how-immigration-boosts-foreign-investment

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