The term “contract” has little to do with the same word used in private law, because a failure to comply with its commitments won’t have any sanction whatsoever –except for the voters’ dissatisfaction.
The German contract is quite impressive with its 183 pages. It includes a wide range of topics, sometimes overloaded with detail and other with a slightly arrogant tone. For those who sign it, the contract is just an exercise of self-justification to their electorate: “I have imposed my electoral promises: and now they are governance objectives.” If the document were merely reduced to such content, then the number of pages would be more “bearable.”
But things are different in Germany. The so-called contract covers virtually all areas of economic and social policy in the country, apart from the commitments thrown during the election campaign. We are facing a quite well-identified Government project regarding critical issues (such as infrastructures or energy) as well as electoral offers.
Nonetheless, the program lists many minor problems (e.g. the preservation and extension of bee-keeping or their aspiration to increase the number of cyclists wearing helmets) and incorporates a purely declarative phraseology: it informs the citizen about the agreement between the Union and the SPD regarding “the important function of the financial markets in economy,” or “the strengthening of the economy’s competitiveness by reducing bureaucracies.” I guess the SPD will provide simplified versions so as to encourage their followers to vote on Saturday 14.
The contract includes information of high importance for all Europeans. A common hypothesis considers that the presence of a left-wing party in the Government will add a certain inclination to public expenditure: is such hypothesis confirmed throughout the contract? On the other hand, we know for sure that Angela Merkel has consolidated a pro-European discourse that went beyond her party’s, and certainly the CSU’s: is such vision included in the contract’s text? But first, a general principle: financing.
Neither taxes nor debt
The coalition government restates the same view than Angela Merkel and her Minister of Finance. The new expenditure items (which are the result of the electoral campaign’s enthusiasm) won’t have any impact on the current generation or in the next. The great principle establishes that the increase in public expenditure can’t exceed the increase in the GDP, so that the parties renounce new debt emissions and commit to reduce their current weight on the GDP.
Actually, all members of the Economic and Monetary Union (EMU) have already gladly accepted such philosophy, although Germany (whose total debt has increased in the last years) may be the first country ready to demonstrate how it is done.
The current expenditure’s derivative
The coalition incorporates some novel features in the employment and social spheres. The SPD’s obsession with the minimum wage is probably the most important concession granted by Merkel, who know that her traditional voters (the Union and the business world) were and are absolutely against it.
Paradoxically, a negative reaction has also emerged within the SPD. There are some among its members who consider that the current leadership has betrayed the basic principles of the Schröeder’s 2010 Agenda. The minimum wage will become law by 2015, but with some exceptions, which won’t make it applicable until two years later.
On the other hand, the contract includes an important election commitment by the German Chancellor: higher pensions for older mothers (which involves around 9 million people and is one of the most urgent ambitions of the women’s groups within Merkel’s party), and the age of retirement (imposed unexpectedly by the SPD). The latter aims to include an exception so that people who have worked for more than 45 years (including periods of forcible unemployment) can retire at the age of 63.
The German Minister of Finance will need powers of persuasion in order to win his European colleagues’ sympathy. There will be new major modifications in the current economic structure of the “sickness funds,” and the authorities will control more strictly abuse and corruption cases.
… and investment
The contract openly acknowledges the country’s deficit in terms of infrastructures, especially the road network, and allocates immediate financing of €5 billion for projects of “pressing need.” For the longer term, it announces the creation of an ambitious infrastructure plan that will cover the period 2015-2030. Such a large investment project will be in line with the coalition’s principle of “strengthening the investment guidance of the federal budget” under the principles of fiscal self-financing and strict debt control.
Furthermore, users will have to finance the bulk of the infrastructures, thus extending the tolls (which exists since 2005) to the HGV transport. “We are confident that net income coming from users will be invested, without detraction, in transport infrastructures.”
It isn’t possible to know, however, whether these resources will be enough in the future to finance investment goals as wide as the ones announced by the coalition. Also, the administration wants to open the possibility of public-private projects, once there are advantageous economic conditions within a flawless legal framework.
The document shows an ironic (and unintended) twist. It is the proposal of creating a tax for foreign drivers in certain sections of the German road net. Yes, we have read correctly: the very German administration expects Europe to provide resources for its own investments! Angela Merkel was against this tax, though.
The first bill
In the contract, the value of the so-called “priority measures” is around €21 billion –a little less than 7% of the federal budget. At its best, it wouldn’t be additional and immediate expenditures but progressive according to each consigment’s features.
Minister Schäuble pointed that there is no forecast income for 2014 to apply to such consignments, but he expects to finance them with surpluses. Essentially, the “priority measures” will constitute substitute expenditure (instead of additional), which frustrates any hope of boosting the public expenditure as an expansive measure within the EMU.
European scenario: a major disappointment
The document constantly insists on Germany’s political commitment with Europe in general, and with the Eurozone in particular. It is “the most important task for Germany.”
In a specific section, political parties talk again about the prevailing doctrine during the crisis since 2010. The crisis doesn’t justify a burden sharing between the Member States (which has been called “loss sharing”). The principal of political sovereignty is the basis of the “no bail-out” which is included in the Treaty.
Each country must apply their national resources so as to control their own crisis and thus recover their competitiveness by means of all the structural measures necessary. Solidarity and responsibility must go together.
The European Banking Union is also included in the contract, which welcomes the unique supervision with the traditional German cautions regarding the peculiar features of minor financial institutions. The document also insists on the widely known German position concerning the mechanism of single resolution, and demands a single European authority, the bail-in of proprietors and creditors, and the establishment of a resolution fund to finance the banking system.
It also includes Minister Schäuble’s last-minute-granting: the authorization to recapitalise private banks directly, within rigorous limits (a maximum of €60 billion). With respect to the banking union’s third pillar, we find a denial to the “loss sharing.”
At this point, it’s difficult to hide a sort of disappointment. After many years exhibiting a pro-European line full of possibilities, the social democrats have been unable to alleviate the hardness of the previous governments regarding the major issues of the European agenda. However, the relative weight of the Union would make it difficult a change in the coalition’s contents. But, in essence, it was expected a little more of the pro-European enthusiasm of leaders and academics close to the SPD. For now, it is inevitable to think that the European chapter is part of the price that the SPD paid in order to fulfill its goal of a minimum wage.