Opinion

A Jamaican Germany is good for Europe

After a surprising election result, Europe is closely watching German coalition negotiations. A so-called Jamaica coalition of conservatives, liberals and greens is the most likely outcome, but many fear this will be bad for the EU and the Eurozone. Not so, argues Guntram Wolff. In fact, a shift to Jamaica could be good news for Europe.

By: Date: September 29, 2017 Topic: European Macroeconomics & Governance

This piece was originally published in Financial times

European eyes are now on the German coalition negotiations. Last weekend’s election saw support for the two mainstream parties fall and a breakthrough for the far right Alternative for Germany. Many observers worry that an unstable coalition, or too much power to the liberal but increasingly euro-critical Free Democrats, could be dangerous for the EU and the eurozone. Actually, the most likely government, a so-called Jamaica coalition of chancellor Angela Merkel’s Christian Democrats with the FDP and Greens, could bring some good news for the eurozone.

The main reason is that a Jamaica coalition — named for the colours of the parties, which match those of that country’s flag — would maintain European economic policies largely indistinguishable from the present government, while possibly bringing substantial changes to domestic policy that would support growth and investment in Germany and abroad.

A four-party coalition could be a catalyst for significant economic reforms that will trigger growth and investment

True, the FDP has announced that it would like to see countries held more strictly to the EU’s stability and growth pact. And this pact has, in the eyes of many, been the cause of Europe’s recession. But the FDP’s position is exactly the same as that of Wolfgang Schäuble, Germany’s departing finance minister. Mr Schäuble has been a fiscal hawk at home and in Europe, and is known to be one of the fiercest critics of the European Commission’s flexible approach to budget rules. Things are unlikely to change, even if the FDP takes over the finance ministry.

The FDP has also been sceptical about the idea of a large eurozone budget, which Euro-federalists hoped to create during a short “window of opportunity” after the German election. But a large common budget was never a realistic proposition, while a small one could have been politically possible but economically irrelevant. Even with a CDU-SPD grand coalition governing with a large majority for the past four years, Germany was not willing to provide ample tax funding to help ailing eurozone countries. In fact, a majority of Germans are opposed to transfers and doubt the effectiveness of a common budget in managing a eurozone fiscal stance.

Regarding debt relief for Greece, the FDP has declared that this is only possible if Greece leaves the euro. But so has Mr Schäuble. So, once again, views on the eurozone will stay the same, even with the FDP in government.

A Jamaica coalition would not be a Eurosceptic government. All three parties are EU supporters. The Greens are positively Europhiliac. A Jamaican Germany would be open to compromises with France and I would expect gradual progress towards greater fiscal integration — but only if it is combined with greater budgetary responsibility from member states.

A Jamaica coalition would also be open to many of the points President Emmanuel Macron of France raised in his speech on Tuesday, such as greater defence and security co-operation, a common migration policy and enhanced collaboration in research and university exchanges. It could even be possible to agree on a transnational list for the next European Parliament to strengthen European democracy, an idea that pleases both the FDP and the Greens. None of this will be easy, but President Macron is right to demand progress and compromise.

Nevertheless, the real benefit for Europe of a Jamaica coalition might actually be in German domestic economic policy. Both the Greens and the FDP have been campaigning strongly on issues that would transform the national economy, such as upgrading the digital strategy, advancing climate mitigation, liberalising services, improving education, increasing female labour force participation and cutting taxes to boost investment.

A Jamaica coalition could thus be a catalyst for significant economic reforms that will trigger growth and investment in Germany. This would support demand in the wider eurozone economy and reduce Germany’s large current account surplus. That would mark a significant break from the inaction of the current government on all domestic economic policy challenges.

The key to a Jamaica coalition’s success will be to distribute responsibilities so that each party’s key campaign promises will be turned into policies. That would mean empowering the FDP to liberalise services, promoting digitalisation and cutting taxes, while putting the Greens in charge of climate, environmental and gender policy.

Meanwhile, Ms Merkel’s CDU and its Bavarian allies, the Christian Social Union, would need to focus on migration and internal security and pursue a conservative course in order to take the wind out of the sails of the AfD.

However, despite the opportunities, there is a substantial risk that views within a Jamaica coalition are so different that any initiative will be blocked by the partners. Ms Merkel will need all her political skill to hold the coalition together and drive change in Germany and Europe.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read article

Opinion

What can the EU do to keep its firms globally relevant?

There is a fear that EU companies will find it increasingly difficult to be on top of global value chains. Many argue that EU-based firms simply lack the critical scale to compete and, in order to address this problem, that Europe’s merger control should become less strict. But the real question is where the EU can strengthen itself beyond the realm of competition policy.

By: Georgios Petropoulos and Guntram B. Wolff Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: February 15, 2019
Read about event More on this topic

Upcoming Event

Feb
21
13:30

Reforming decision-making for EU taxation policy

How should the EU taxation policy be reformed?

Speakers: Johannes Becker, Pierre Moscovici, Paola Profeta and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Feb
27
12:30

Diverging narratives: European policies and national perceptions

A look at the politicians' view of the EU.

Speakers: Pierre Boyer and Giuseppe Porcaro Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Opinion

The EU needs a Brexit endgame

Britain and the EU must try to preserve the longstanding economic, political, and security links and, despite the last 31 months spent arguing over Brexit, they should try to follow a new path toward convergence.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: January 31, 2019
Read article More on this topic More by this author

Opinion

What does a possible no-deal Brexit mean?

With Brexit getting closer, it is still extremely difficult to predict which one of the possible outcomes will materialise. Guntram Wolff examines what exactly it would mean for the UK to 'crash out' of the EU, for both parties.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: January 24, 2019
Read article Download PDF More on this topic

Policy Contribution

Equity finance and capital market integration in Europe

Facilitating the financing of European companies through external equity is a central ambition of European Union financial regulation, including in the European Commission’s capital markets union agenda. Against this background, the authors examine the present use of external equity by EU companies, the roles of listings on public markets, and the regulatory impediments in national laws. They assess to what extent EU market integration has overcome the crucial obstacle of shallow local capital markets.

By: Inês Goncalves Raposo and Alexander Lehmann Topic: Finance & Financial Regulation Date: January 17, 2019
Read article Download PDF More on this topic More by this author

External Publication

Vertical restraints and e-commerce

This article wishes to provide guidance on how the new vertical restraints linked to e-commerce should be treated and recommendations over the priorities and challenges that need to be addressed.  

By: Georgios Petropoulos Topic: Innovation & Competition Policy Date: January 15, 2019
Read article More by this author

Blog Post

What 2019 could bring: A look inside the crystal ball

Economic performance prospects in Europe, the US and Asia in 2019. We start off by reviewing commentaries and predictions about the euro zone, which many commentators expect to perform below potential as uncertainties continue to dampen a still robust recovery.

By: Michael Baltensperger Topic: European Macroeconomics & Governance, Global Economics & Governance Date: January 14, 2019
Read article More by this author

Podcast

Podcast

Director’s cut: Wrapping up 2018

With 2018 drawing to a close, and the dawn of 2019 imminent, Bruegel's scholars reflect on the economic policy developments we can expect in the new year – one that brings with it the additional uncertainty of European elections.

By: The Sound of Economics Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Date: December 20, 2018
Read article Download PDF More on this topic

Policy Contribution

The euro as an international currency

Is a more important international role for the euro worth pursuing? What measures would achieve this result, if it is worth pursuing?

By: Konstantinos Efstathiou and Francesco Papadia Topic: European Macroeconomics & Governance Date: December 18, 2018
Read article Download PDF More on this topic More by this author

Essay / Lecture

A new statistical system for the European Union

Quality statistics are essential to economic policy. In this essay, Andreas Georgiou demonstrates the existence of fundamental risks inherent in the European Statistical System. He argues that a paradigm shift is necessary and sets out a model that would deliver the quality statistics the European Union needs.

By: Andreas Georgiou Topic: European Macroeconomics & Governance Date: December 12, 2018
Read article More on this topic More by this author

Opinion

Immigration: The doors of perception

Surveys show that people systematically overestimate the share of foreign-born citizens among resident populations. Aligning people's perceptions with reality is vital to the betterment of public debate and proposed policies.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: December 12, 2018
Load more posts