Germany’s PR system has delivered uncertainty and a log jam at the heart of Euroland. Mrs Merkel is way short of a majority in the Budesrat, where the SPD still have a strong position. She has 311 seats in the Budestag, compared to the 319 seats majority of the Green/red/ left, were they ever able to act together. Today the SPD debate with themselves whether they could consider a Grand Coalition with Mrs Merkel.
The price of coalition for Mrs Merkel, whether she tries the SPD or the Greens, is similar. They both want a Minimum wage and greater labour market regulation. They want a continued drive towards dearer energy and renewables. They want higher taxes on the higher earners. They want higher domestic state spending at federal and especially lander and local level.
The German election has broken the FDP, followed by the resignation of its leader. It has led to the resignation of the leaders of the Green party. The leadership of the SPD contains people very unwilling to enter coalition. They are apprehensive about being very junior partners.
Meanwhile the EU seeks approval for higher spending than planned, despite the political pressure of a smaller budget. It seeks more assistance to broken banks in Euroland. An impecunious union, supported by some states that are themselves financially very distressed only knows one song – higher taxes.
The tax, regulation and energy plans of the EU, buttressed by the left of centre German parties, is bad news for Germany’s motor and manufacturing industry. It means they will want to cling to the Euro for longer, as a weak Euro from Germany’s point of view will offset some of the competitive damage done by the other policies.
The UK has to reassert its position that it will not help pay for a higher future EU budget, and will certainly not provide bail out money for Euroland banks. The Germans have been paying a 5.5% tax surcharge or “solidarity payment” for the expensive currency union of East and West Germany. They have no wish to start paying an even larger extra tax as a solidarity payment for the Euro. Nor will many of them welcome the idea of bailing out Euroland banks.
The truth is, in a single currency you do have to help the neighbours, as you share a bank account with them. The UK has wisely stayed out, so we must make sure not a penny of our money goes into trying to support such an uncomfortable structure.