Merkel’s Victory for the Transatlantic Economy

Peter S. Rashish

Vice President; Director, Geoeconomics Program

Peter S. Rashish, who counts over 30 years of experience counseling corporations, think tanks, foundations, and international organizations on transatlantic trade and economic strategy, is Vice President and Director of the Geoeconomics Program at AICGS. He also writes The Wider Atlantic blog.

Mr. Rashish has served as Vice President for Europe and Eurasia at the U.S. Chamber of Commerce, where he spearheaded the Chamber’s advocacy ahead of the launch of the Transatlantic Trade and Investment Partnership. Previously, Mr. Rashish was a Senior Advisor for Europe at McLarty Associates, Executive Vice President of the European Institute, and a staff member and consultant at the International Energy Agency, the World Bank, UNCTAD, the Atlantic Council, the Bertelsmann Foundation, and the German Marshall Fund.

Mr. Rashish has testified before the House Financial Services Subcommittee on International Monetary Policy and Trade and the House Foreign Affairs Subcommittee on Europe and Eurasia and has advised three U.S. presidential campaigns. He has been a featured speaker at the Munich Security Conference, the Aspen Ideas Festival, and the Salzburg Global Seminar and is a member of the Board of Directors of the Jean Monnet Institute in Paris and a Senior Advisor to the European Policy Centre in Brussels. His commentaries have been published in The New York Times, the Financial Times, The Wall Street Journal, Foreign Policy, and The National Interest, and he has appeared on PBS, CNBC, CNN, and NPR.

He earned a BA from Harvard College and an MPhil in international relations from Oxford University. He speaks French, German, Italian, and Spanish.

Sometimes, the absence of something proves its existence.  That was certainly the case with the importance of transatlantic relations for Germany’s economic interests during the recent election campaign that returned Chancellor Merkel with a historic third term.

Not even the scandal surrounding Edward Snowden’s leaking of classified information from the U.S. National Security Agency could create enough leverage for the opposition to place Germany’s trade relations with the United States at the center of the election debate.  The Social Democratic Party’s (SPD) chancellor candidate, Peer Steinbrück, tried his best to capitalize on the apparent U.S. eavesdropping on German and European officials by threatening to call a halt to the ongoing Transatlantic Trade and Investment Partnership (TTIP) negotiations until the scandal was cleared up.  But, he gained little if any traction with that idea among the German electorate. The press did not seize upon it, and TTIP appears to have emerged unscarred from the election debates.

Now that the ballots have been counted and the likely outcome is a revival of a Grand Coalition between Merkel’s Christian Democrat Union (CDU) and the left-of-center SPD — replaying the situation in 2005-2009 — what does the new German political landscape tell us about the role trade and broader issues of international economic engagement will play in the country’s future?  As Europe’s leading economy, Germany’s position on a major trade initiative such as TTIP will have repercussions far beyond its borders.

There are three key messages from the vote:

• The failure of the centrist, pro-business Free Democrat Party (FDP) to gain seats in the Bundestag for the first time since the end of World War II mainly reflects the party’s imprecise policy profile among voters and the fact that as the junior party in the outgoing coalition it failed to get the tax cuts enacted that were the party’s most clearly identifiable priority.  Like many European “liberal” — free market and pro-civil liberties — parties, the FDP is in favor of greater free trade in general and TTIP in particular.  The absence of the FDP in the German parliament doesn’t help TTIP, but it is unlikely to hurt it either as it is the chancellor herself, who was the key European prime mover in getting TTIP off the ground and who will continue to be its strong proponent.
• Despite Steinbrück’s attempt to score points by connecting TTIP with the Snowden affair, a tie-up between the CDU and the SPD is unlikely to cause any ripples in Germany’s debate about TTIP.  Not only does the SPD have solid pro-trade credentials of its own, but also it is on record as favoring more growth-friendly policy measures as a way to help indebted countries in the euro zone emerge from the current crisis.  It is unclear whether the SPD would have success in convincing Merkel to take steps that would implicate either greater activism by the European Central Bank or looser fiscal policy in Germany itself.  But, as TTIP is expected to lead in particular to higher growth in the indebted euro zone countries, vigorous SPD support for an ambitious trade agreement with the United States would seem a natural.
• Finally, what about the near breakthrough of the populist, anti-euro Alternative for Germany (AfD) party?  While the party just failed to reach the 5 percent needed for representation in the Bundestag, it surprisingly scored almost as well as the FDP — 4.7 versus 4.8 percent.  The party was able to capitalize on fears stoked by the popular press that Germany’s economy would perform better unshackled from the European common currency — a contention that ignores how much Germany’s exports have benefited from the euro’s relatively low value, let alone the upheaval that would occur in financial markets following the currency’s breakup and the political cost of such a step backward in European integration. The good news is that, at least so far, such economic nationalism has not migrated beyond Europe to matters transatlantic or global — neither TTIP, nor global trade were in the AfD’s line of fire.

So, all is well? Perhaps. Germany has been one of the big winners from globalization, as its competitive, export-oriented firms have reaped gains from the opening of new markets in Asia and Latin America.  But, as many of these economies experience slowing growth, the impact on Germany will be felt, and the free-trade consensus could be shaken.  A key objective of the new government in Berlin should be to remind citizens of how much Germany stands to gain from further transatlantic economic integration, and that it is only in tandem with its U.S. partner that challenges in the global economy can be successfully faced.