Germany's Angela Merkel finally reaches coalition deal with SPD

Germany's Angela Merkel finally reaches coalition deal with SPD
Germany's Angela Merkel finally reaches coalition deal with SPD

That doesn't sound too bad at all to me.

Arms exports: The two sides have agreed to tighten Germany's arms export controls — last updated in 2000 — specifically to exclude all countries taking part in the Yemen War. This would be a major change, since it would mean Saudi Arabia, one of the best customers for German arms, would be left out.

Well, there's a hard-to-measure secondary cost there, because it makes German arms suppliers less-reliable to customers. But the up-front cost is pretty straightforward.

My guess is that this will have little-to-no policy benefit, since other people (cough us, for example) will happily sell them whatever they want and Germany is not trying to coordinate an international ban. So I'd say that this is effectively just a crowd-pleaser. But at least the costs are pretty quantifiable and limited.

Immigration: One of the thorniest political issues was dealt with fairly early: The two sides agreed last week that the number of refugees brought to Germany via family reunion would be capped at 1,000 a month — the same figure that was set out at the end of exploratory talks a few weeks ago — and that the current suspension on reunions would end on July 31.

12k per year seems very low to me, given the number of applications. IIRC, family reunification in the US is something like three times the initial migration.

Since 2012, Germany has been the primary destination country for asylum seekers in Europe, receiv....

I don't know what the backlog is, but the refugee accept rate in Germany has been between 25% and 50%. Assuming that that holds, there will presumably be a terrific backlog, many years long, even with no further applications.

That means that this is probably not a huge concession from the CSU: even what the SPD would want the numbers raised to are still extremely low.

Europe: The three parties have agreed that Europe needs "more investment," specifically in the shape of an investment budget for the eurozone. That deal was celebrated by the SPD as "an end to the austerity mandate" across the European Union, but it remains to be seen how the details pan out.

No way to know what this means. Could be a good idea, could be a bad idea.

The parties also promised a special focus on reducing unemployment among young people


and "fair taxation of companies — especially the internet giants Google, Apple, Facebook, and Amazon in Europe."

As long as the taxes aren't retroactive and are evenly applied to all companies in the sector, I don't personally have any complaints from a US standpoint. I don't really see any issues from a German standpoint -- even if they get the taxation wrong, the tax can be backed out. The worst cost is maybe scaring off some companies.

I think that some past taxes (like the link tax) have been poor decisions, but, again, easy to revert if they work out badly.

Housing: The SPD claimed a victory in combating an urgent problem in many of Germany's urban centers: unbridled property speculation, which has led to rising rents, a shortage in affordable housing, and increasing homelessness.

In fact, that gain mainly amounts to a slightly tougher rent cap, which would force landlords to disclose the previous tenants' rent. Renters' rights organizations have already said the idea doesn't go nearly far enough. "That's as good as nothing at all," Reiner Wild, head of the Berlin renters' association, said of the modification — what was needed was the threat of real punishment for landlords who violate the cap.

I think that rent control is a terrible idea: they tend to exacerbate housing shortages, and you aren't going to find economists endorsing them. However, more information about rent seems like something hard to complain about.

Without any familiarity with the market, I have to say that I'm also dubious that it is property speculation driving this: if I buy a property as an investment to ride its appreciation, I might as well also rent the thing out to make more money. Even if speculators are too optimistic about property appreciation, I'd think that it'd drive down rents, not up (though, at least in the short term, the cost of buying a house might rise).

I'd guess expect that it has more to do with people moving into Germany and demand for housing.

A major reason for the sharp price increase in Berlin is the simultaneous increase in new Berlin residents.

“The number of residents rose in Berlin by eight percent since 2010,” Heidrich said.

“If the prognosis of four million residents by 2030 is met, that would be a further increase of nearly 15 percent from where we stand today."

But the report notes that the amount of housing built during that time has not kept up with the growing population, only increasing by two percent between 2010 and 2015.

Schools: Apart from an €11 billion ($13.6 billion) package meant to boost Germany's investment system, the two sides have agreed to lift a so-called cooperation ban, which stops the federal government investing in schools — something that is supposed to be an exclusive purview of the states.

This seems economically-efficient to me too. People can move around within Germany, which means that the benefits of educating people in one place may be enjoyed by other places. I'd tend to favor having the federal government fund education over the state government.

The US deals with this by having the federal government provide some subsidies, but not being permitted to dictate the content of education, leaving that up to the state government. I think that that's an interesting approach. The only real risk would be the federal government over-funding education, and I think that there's room for competition between states in how the funding is used.

I still think that the EU would be better-off either having an EU-wide shared pool or (even better) simply requiring students to pay the full tuition themselves, to avoid the issues of students being educated in one place and moving elsewhere. However, as Germany is generally a "destination state", I expect that the risks of government funding of education are lower in Germany than in other places.

Digitalization: Here, the two parties agreed to a "billion-euro program" to extend Germany's broadband reach to close gaps in a country where many rural areas are still internet blackspots. There will, the working group promised, be "a right to a fast internet by 2025" — in other words, a law guaranteeing all Germans broadband internet connection. The plan has been criticized by Bitkom, the IT sector industry association, which said the obligation would only hold back internet providers.

I'm not enthralled with having the state operate infrastructure, but it is true that Internet access is a natural monopoly, one of the areas where if you're going to have state involvement, it's the most-sensible to do. And there are probably some considerable positive externalities to being able to rely on all residents having Internet access -- same rationale that has caused countries to long provide for universal postal service.

All-in-all, if that's all the CSU has to give up, were I German, I don't think that I'd be too upset swallowing that.

If the SPD looses votes, the CDU will as well (they lost almost 10% this time), same as this time, so even if the SPD stays exactly the same it could still be not enough for a grand coalition next time. If the CDU does not want to suffer the same fate as the SPD they have to do something as well.

So expect the same politics for the next years that we had in the past.

The next election will be interesting, when the SPD has lost even more voters, i wonder if they would be the junior partner in a coalition with the Greens.

Though they were in a lose-lose position either way. Without the next grand-coalition it result would be a new election that changes nothing and no clear majority for any coalition to work on.

With this grand coalition, they will lose more voters in the future, as the good policies brought up by the junior members will be attributed to the larger party while the voter base will still remember their promises that they weren't able to keep.