Easy politics, bad policies

ANGELA MERKEL, Germany’s chancellor, is popular because Germans see her as a steady hand. In her first term, between 2005 and 2009, she coped with financial turmoil emanating from America. In her second, from 2009 to 2013, she kept the euro crisis at bay. In her third term, now in its fifth month, she is Europe’s leader in confronting Russia over Ukraine.

At home, however, she is less sure. She could be ambitious. As in her first term, she is in a “grand coalition” of the two biggest groups in parliament: her own Christian Democratic Union (CDU) with its Bavarian sister party on the centre-right, and the Social Democratic Party (SPD) on the centre-left. The opposition has just one-fifth of the seats, and consists of two parties with little credibility. The smaller is the Greens, still squabbling after their defeat in September’s election. The larger is the ex-communist Left Party. Its parliamentary leader, Gregor Gysi, is easily the Bundestag’s most entertaining and witty speaker, but that is largely because he is unburdened by any responsibility.

During her previous grand coalition Mrs Merkel made one big domestic reform. In Europe’s fastest-ageing country, she raised the retirement age from 65 to 67. Sadly, there is less method in the seeming madness of the present coalition’s opening salvo of policies—what Germans are calling Reförmchen, or “reformlets”. One of these again affects pensions, but in the opposite direction, lowering the retirement age for certain workers to 63, and perhaps even to 61 if years in unemployment are counted. Economists and employers are screaming foul. So are 50 of the 311 parliamentarians from Mrs Merkel’s own centre-right camp, who fear the economy will suffer.

Another Reförmchen is to introduce a national minimum wage for the first time, of €8.50 ($11.72). This will affect about 14% of workers nationwide and 20% in the less productive former East Germany, according to a study by three economists at universities in Magdeburg, Berlin and Dresden. When Britain introduced a minimum wage in 1999, it affected only 5% of workers. Germany’s wage floor would barely increase incomes of poor workers, because they would lose welfare top-ups, the study says. But it could mean that as many as 900,000 lose their jobs. And it could stop young people (over 18 but under 21) getting good training and permanent jobs at all.

In energy, Germany is trying to switch from nuclear and fossil-fuel sources to sun, wind and biomass. But it is not going well. Electricity prices are going up; German companies are losing ground to foreign rivals; and carbon emissions are rising, not falling. Deep reform is needed to the huge and inflexible subsidies for renewables, which will cost €24 billion this year. Instead, the cabinet is making another Reförmchen, tweaking the system in ways that consumers and firms will not notice.

The government has also intervened messily in the property market, where rents are rising fast in some cities. It will cap increases in rent when re-letting flats to at most 10% of the rental average in the relevant district. The rules are still vague. But that hasn’t stopped landlords from panicking and raising rents as high as they can in anticipation. Investors who were planning to build new housing are thinking again.

A rare positive change concerns dual-citizenship laws, which Germany will liberalise. Currently, children of foreign parents (those from outside the European Union) who were born in Germany have to choose between their passports before their 23rd birthday. Germany’s large Turkish population is especially affected. In future such people may keep both passports, so long as they can show that they “grew up” (for at least eight years) in Germany. This still involves bureaucratic hassles. But it is at least a step forward.

These Reförmchen have two things in common. First, polls suggest they are popular. Second, they are part of the SPD’s wish list and are driven mainly by its ministers. The pension changes and minimum wage are being pushed by Andrea Nahles, the labour minister; renewables reform comes under Sigmar Gabriel, the energy and economy minister; rent caps and dual citizenship fall to Heiko Maas, the justice minister (although he co-ordinates with the Christian Democratic interior minister, Thomas de Maizière.)

This seems odd. The SPD ought to be the weaker partner in the coalition, having won only 25.7% of the vote in September against 41.5% for the centre-right. But the SPD extracted some big concessions as a price for entering the coalition, in hopes of showing the voters that they had made their mark. That strategy could backfire. The SPD will soon run out of pet projects. By 2017 voters may have forgotten their initial activity; or the Reförmchen will prove damaging and help the CDU instead.

But the SPD is not the only one running risks. The CDU, Germany’s largest party, no longer stands for anything recognisable. Its longest-serving minister, Wolfgang Schäuble at finance, boasts that he will in 2015 propose the first balanced budget in 45 years. But that achievement owes much both to reforms that Germany made many years ago and to low interest rates.

Aart De Geus of the Bertelsmann Stiftung, a think-tank, worries that reversing previous reforms and adopting growth-unfriendly new ones may mean that Germany squanders much of its past progress. Over ten years have passed since Gerhard Schröder’s Agenda 2010 reforms helped transform a country beset by high unemployment into today’s powerful economy. Now Germany is near the bottom of the league for reform. For a high-cost country with gloomy demographic prospects, that is deeply worrying.