Analogue country in a digital world!

➢The Germans, it has been said repeatedly down the decades, have a superior model of
capitalism: based on
1) good design and skilled workmanship;
2) stable, long-term funding arrangements between businesses and the banks;
3) a more consensual system of industrial relations;
4) a network of medium-sized companies,
5) many of them family-owned;
6) a top-notch system of vocational and technical training that ensures a steady supply of
skilled, productive workers.
➢Germany has been able to spend €2tn (£1.7tn) over 30 years levelling up east Germany

Key factors contributing to the crisis:

• Energy dependence:
• Germany's heavy reliance on Russian gas for energy production left it
particularly vulnerable to price hikes following the Ukraine invasion,
significantly impacting energy-intensive industries like manufacturing. •
Export market slowdown:
• China, a major export destination for German goods, has experienced slower
economic growth, reducing demand for German products.
• Manufacturing decline:
• The industrial sector, once a core strength of the German economy, is facing
significant production declines due to high energy costs and global
competition.
• Investment hesitancy:
• Uncertainty in the market, combined with high financing costs, is
discouraging companies from making new investments.
• Structural issues:
• Critics point to Germany's rigid labor market, complex bureaucracy,
and slower adoption of new technologies as hindering economic
competitiveness.
The End of Germany’s economic model
➢For decades, Germany relied on a system that depended
on ➢cheap Russian gas,
➢cheap imports of consumer goods from China,
➢high-value exports – particularly in the automotive sector –
and ➢the US security umbrella.
CORPORATE CRISIS!
➢Deutsche Bahn, Germany's national railway operator, recently
agreed to sell its logistics subsidiary Schenker to Danish rival DSV for
approximately €14bn.
➢At the same time, Commerzbank, Germany's second-largest private
lender, is a prime target for a foreign takeover. UniCredit, the Italian
banking giant, has discreetly increased its stake in Commerzbank to
21%, raising speculation that a hostile takeover could be on the
horizon.
Volkswagen’s woes mirror Germany’s CRISIS!
➢Volkswagen encapsulates the negativity
gripping Germany. The carmaker’s woes will
ripple through the entire automotive industry,
which is the country’s single-largest sector
accounting for 5% of GDP and employing
almost 800,000 people — about 37% of
whom
work for Volkswagen, many in well paid jobs.

➢Volkswagen, which also owns Audi and

Porsche, epitomizes the manufacturing
prowess and export success that has turned
Germany into one of the world’s biggest
economies — which is now under grave threat.
TRAFFIC
LIGHT
COALITION
 Olaf Scholz (SPD) and Economy Minister Robert Habeck
(Greens) failed to hold the coalition together
The plan was for
1) “Social Democrats to give social
welfare to their constituencies,
2) for the Liberals to reduce taxes for
business owners, and 3) for the Greens
to do climate projects,” in line with
their parties’
priorities,
Finance Minister Christian Lindner (FDP), Chancellor

What is Germany's debt brake?

➢Article 109 of the Basic Law,
paragraph 3, states: "The budgets of
 the Federation and the Länder shall, in
principle, be balanced without
revenue from credits." This
requirement is known colloquially as
the "debt brake."
➢The requirement was introduced in
2009 under then Chancellor Angela
Merkel, a Christian Democrat (CDU),
and her Finance Minister Peer
Steinbrück, a Social Democrat (SPD).
➢Budgets balanced from 2014 to 2019 (CDU) was already able to present a
➢The debt brake became legally balanced budget for the first time in 45
binding for the federal government in years.
2016 and for the states in 2020. ➢ The term "black zero" was coined
➢However, in 2014, the then Federal to mark Schäuble's achievement and
Finance Minister Wolfgang Schäuble became a political slogan, because
expenditure and income balanced
 each other out. output.
➢However, the debt brake is not ➢An example: Germany's gross
absolute, at least not for the federal domestic product amounted to
government. around €3.88 trillion ($4.25 trillion)
➢While an outright ban on debt in 2022, meaning the federal
applies to the federal states, the government would have been
federal government is permitted allowed to take on around €13
net borrowing amounting to a billion in additional debt.
maximum of 0.35% of economic
Coronavirus and Ukraine war
➢However, the government borrowed somewhere in the three-digit billion

euro range in 2022. ➢That was because Germany's parliament, the Bundestag,
voted to make use of an exception to the debt brake, as it had already done for
2020 and 2021: Referring to the consequences of the coronavirus pandemic and
the war in Ukraine, parliament claimed an "extraordinary emergency situation.
➢"The Basic Law allows the debt brake to be suspended "for natural disasters
or unusual emergencies beyond governmental control and substantially
harmful to the state's financial capacity."
➢In the current debate on the 2024 budget, the governing SPD and the
Greens are once again calling for an emergency situation to be declared due to
the financial consequences of the war in Ukraine and the ensuing energy
crisis.
➢The demise began on November 15, 2023, when the Federal Constitutional
Court declared parts of the government's budget policy unconstitutional. It
deprived the coalition of a viable financial plan, then exposed the rifts
between its partners.

➢Germany's highest court ruled against the government's plans to

reallocate money earmarked but never spent from a cache of debt taken
 out to mitigate the fallout of the COVID-19 pandemic. The money was
instead earmarked for the government's climate action budget. The court
ruling left the budget €60 billion ($65 billion) short.

➢Since then, the coalition partners have been trying to raise their own
profile at the expense of the others, publicizing proposals before even
discussing them with cabinet colleagues.
 Christian Lindner (right) received his certificate of
dismissal as Germany's Finance Minister from
President Frank-Walter Steinmeier
• Step 1: Vote of no confidence
• Article 68 of Germany's constitution, the Basic Law, outlines what
would happen next: The chancellor must introduce a motion
requesting that members of the Bundestag declare their support for
him or her. Germany's constitution allows for 48-hours of
consultations before the parliament must come to a decision.
• Step 2: Dissolution of parliament
• In cases when only a minority of the Bundestag expresses its support
for the chancellor, then he or she must propose that the federal
president, currently Frank-Walter Steinmeier, dissolve parliament. If
the head of state also sees no feasible prospects for a stable
government under current circumstances, he or she has 21 days to
dismiss parliament and clear the way for an early election.
• Step 3: Early election
➢At this point, Article 39 of Germany's Basic Law comes into play,
which states that a new election must be held within 60 days of the
dissolution of parliament.
➢This will be the first election held following the recent electoral
law reform law, which will restrict the upcoming Bundestag to 630
members, down from 733.
Willy Brandt intentionally lost a vote of
confidence to trigger a snap election in 1972
➢ Willy Brandt
➢ , the first chancellor from the center-left Social Democratic
Party (SPD), governed in a coalition with the neoliberal Free
Democratic Party (FDP) beginning in 1969. His "Ostpolitik"
(politics toward the East) led to a vote of confidence in 1972.

➢ The government's majority was dramatically reduced, and

 Brandt's support fell to parity with the opposition conservatives,
the Christian Democratic Union (CDU) and the regional Bavarian
Christian Socialist Union (CSU): each side had 248
representatives in the Bundestag.

➢ Brandt stuck to his plan and called a vote of confidence on

September 20, 1972 — and lost, as he had planned. That set the
path for the Bundestag's dissolution and a new election, which
was held on November 19, 1972.

➢ Brandt was reelected as chancellor, and the SPD received 45.8%

of the vote — its best result to date. Voter turnout was the
highest ever for a Bundestag election, at 91.1%.
Kohl emerged victorious from the general election triggered after
he defeated SPD Chancellor Helmut Schmidt in a constructive vote
of no confidence in 1983

➢ Helmut Kohl, of the CDU, was responsible for

the second early Bundestag election, in 1983.
Kohl assumed power following a constructive
vote of confidence in the then Chancellor
 Helmut Schmidt (SPD), in October 1982. The
majority of parliamentarians had withdrawn
their confidence in Schmidt due to differences
over his economic and security policy.
➢ Because Kohl's coalition of the CDU/CSU and
FDP came to power through a vote of
confidence and not a general election, Kohl
wished for additional legitimacy through a
general election. He called for a vote of
confidence, which he, too, deliberately lost on
December 17, 1982,

The SPD's Schröder lost to the CDU's Angela

Merkel in his snap election gamble in 2005
➢ The SPD's Gerhard Schröder initiated
Germany's third early election in 2005. He
was chancellor at the time, heading a
coalition with the Greens.
 ➢ The SPD was struggling after a series of
state election defeats and declining
support in the Bundestag. The dwindling
support was mostly due to Schröder's
controversial Agenda 2010 reforms, which
had drastically changed the social system
and the labor market. Schröder called for
a vote of confidence, which he
deliberately lost on July 1, 2005, thus
triggering a new election.
➢ Angela Merkel Chancellor, heading a
CDU/CSU-led coalition supported by the
SPD. That was the start of 16 years in
office for Merkel.

Bundestag
➢ The present 20th Bundestag
(German Parliament) is its
largest ever, since the first post
war legislature was inaugurated
 in 1949, with a total of 736
deputies.
➢ The current tally positions the Bundestag as the largest
Parliament among
democratically elected
assemblies, even bigger than
the 720-strong parliament of
the European Union.
On July 30, Germany’s federal constitutional court upheld the government’s
move to downsize the lower house of parliament, with effect from the 2025
federal elections.

➢Since the country’s second quadrennial federal elections of

1953, each voter has exercised two votes, in what is known as
the personalised proportional or mixed-member proportional
representation system.
➢The first vote is cast to directly choose a candidate from a local
constituency via the conventional first-past-the-post method of
obtaining a simple majority for a total of 299 seats.
➢Voters simultaneously cast a second ballot to choose a political
party for another 299 parliamentary seats, which are distributed
across Germany’s 16 regions.
➢A party must have secured either 5% of the second vote share or a
minimum of three individual constituencies to qualify for entry into
parliament.

➢The 5% threshold was stipulated to prevent too many splinter

parties from entering the Bundestag.
➢ It is the second, that is, the state list vote that determines the
relative strength of parties in the Bundestag, because the allocation
of seats is proportionate to the number of second votes each party
has received.
➢The conversion of the second votes into seats involves a two-stage process.
➢ Each region receives seats in proportion to the population resident
therein.
➢These are then distributed among the parties based on their
respective share of second votes.
➢The seats for each party at the federal level is subsequently fixed as per the
number of candidate seats it won in the state, as well as the number of seats
 it was entitled to, based on the share of the second vote it received.
➢The higher of the above two figures is the final tally of the party’s seats in
a region.
➢The cumulative addition of seats across the regions makes up the
party’s strength in the Bundestag.

Why have legislators increased?

➢Germany’s two largest parties, the ruling Centre-left Social Democrats (SPD)
and the opposition Centre-right Christian Democratic Union (CDU), have over
the decades garnered the maximum number of directly elected seats.
➢These first vote seats are invariably greater than the seats that they would
be entitled to on the basis of their share of the second votes and as such are
known as extra seats or overhang seats.
➢ However, in view of Germany’s personalised proportional system,
parties have been allowed to retain these overhang seats.
➢Crucially, even though the support base of the larger parties has eroded
in recent years consequent to the emergence of smaller parties, they have
managed to retain their dominance of first vote seats.
➢In a 2008 decision, the constitutional court ruled the rising
numbers of overhang seats as violative of the equality of elections
and hence unconstitutional.
➢ In 2012, the constitutional court addressed this imbalance by ruling
that the large number of extra or overhang seats that accrued to the
larger parties must be compensated through the creation of “balance
seats” for smaller parties.
➢This would be in accordance with the principle of equal
suffrage, direct elections and equal opportunities for political
 parties.
➢The verdict therefore inevitably resulted in a further addition to
the number of legislators.
➢ The Court has since upheld amendments to the election law
that broadly reflect its 2012 judgment
What move did the govt. propose?

➢On March 17, 2023, the government enacted legislation which would
cap the size of the Bundestag at 630 representatives with effect from
the 2025 federal elections.

➢Whereas the number of candidate seats will remain at 299, the

 party list will increase to 331 seats.

➢The new limit was decided under the guidance of an Electoral

Rights Commission in 2022 and would be achieved by scrapping
both the “overhang seats” and “balance seats”.
➢Crucially, the weightage hitherto attached to candidate seats
would be reduced.

➢ Obtaining a simple majority in an individual constituency will

not henceforth automatically translate into a parliamentary seat.

➢Where parties win more candidate seats than their second vote
share entitles them to, individual winners who poll the lowest share
 of the vote will not be awarded a seat.

➢This has now been upheld by the federal constitutional court.