The Federal Republic of Germany is the largest economy in Europe and a key ally of the United States; So when the Germans vote, as they did on September 26, the world pays attention.
The challenge today is to understand what all this means.
For the first time in 16 years, Angela Merkel was no longer a candidate for chancellor when the Germans went to the polls. His absence meant it would be a close race between his center-right party (CDU / CSU) and the center-left Social Democrats (SPD) led by Finance Minister Olaf Scholz. Indeed, it was tight, but in the end the SPD beat the CDU / CSU by less than 2% of the vote, and Scholz will apparently have the opportunity to form a new government.
The landscape has changed considerably since the last elections in 2017. None of the main parties won a majority, which means that a coalition government must be formed. Two other parties – the Greens and the Liberal Democrats (FDP) – are expected to be key players, and we will likely see the first tripartite coalition in modern German history. But given the divergent views between the parties, it will take weeks, if not months, to concoct an effective government majority in the German parliament (Bundestag).
Why is this important
Germany is the world’s fourth-largest economy and a key trade and investment partner for the United States. Bilateral trade between our countries amounts to more than 250 billion dollars annually. Two-way investments total approximately $ 520 billion, and those investments support the jobs of more than 1.5 million workers, including 870,000 here in the United States.
Germany plays a central role in shaping the EU’s political and regulatory agenda, a fact that makes the formation of a new government in Berlin urgent. There are vital debates in Europe – around the transatlantic relationship, climate change, the digitization of the global economy, and Europe’s rapidly evolving relationship with China – and we need Germany to Table.
What does the future hold?
American companies operating and doing business with Germany can continue to expect it to be a productive, predictable and profitable place to do business.
All the major parties in Germany support close transatlantic ties and a strong European Union. Germany will continue to champion trade and tight-knit international supply chains. There is also broad support for an ambitious climate policy across the German political spectrum.
On the digital agenda, we also expect continuity, which is not entirely a good thing. The current government has tacitly backed some of the most discriminatory digital policies emanating from Brussels. Olaf Scholz has indicated that he supports working with the United States on technological issues, although he has also embraced the idea of increased European capacity.
It remains to be seen whether this will mean new barriers to market access – in the form, perhaps, of the EU’s proposed digital markets law – for innovative US companies. The Greens want to invest heavily in broadband and other digital infrastructure, but it is not yet clear if and how American companies will be able to bid on these projects. While a potential government is unlikely to take a fully protectionist approach to the digital economy, it remains an issue to watch out for.
The main risk to transatlantic relations in the coming months is for Germany to focus on itself as its leaders scramble to form a new government.
As transatlantic tensions persist – as evidenced by French protests against the US nuclear sub-deal with Australia and the AUKUS pact the two announced with the UK – Berlin’s stabilizing influence is badly needed . The new US-EU Trade and Technology Council, which met in Pittsburgh, needs the active support of major European economies like Germany if both sides are to achieve their ambitions.