24 November 2021

POLITICO: What’s in the German coalition deal for Europe (and the UK)

Germany's incoming government plans to urge Brussels to be tougher on the rule of law, supports EU treaty changes and might just be open to changing Europe's debt rules.

Those were just some of the messages Germany's next ruling coalition sent out on Europe on Wednesday as it presented a deal that paves the way for a center-left government to take over under the leadership of Social Democrat Olaf Scholz.

The agreement means the leadership of the EU's biggest economy will soon leave the hands of center-right Chancellor Angela Merkel, who decided to step down after 16 years in office. And that has raised questions about how much Germany will change its approach to core European issues.

The coalition treaty emerged after weeks of talks between the Social Democrats, Greens and pro-business Free Democrats (FDP) — a trio that has never before governed Germany. In the deal, the parties stressed that Germany has a "special responsibility" to serve Europe. But their version of serving Europe may occasionally differ from that of Merkel, who often took a centrist, nonconfrontational approach to divisive EU issues.

Significantly, the coalition's agreement called on Brussels to take a tougher stance in its rule-of-law battles with countries like Poland and Hungary. The European Commission has long expressed frustration with both countries over backsliding on democratic norms, but has yet to formally use some of its more punitive powers, such as a tool that would allow it to withhold certain funds from its members over rule-of-law concerns.

"We urge the European Commission ... to use the existing rule-of-law instruments more consistently and in a timely manner," the text reads. It adds that Berlin will only approve payment of EU pandemic recovery funds to those countries "if preconditions such as an independent judiciary are secured."

On EU debt rules, the coalition treaty strikes a balance between the more hawkish fiscal views of the FDP and the more reform-oriented approach of the other parties. The EU's rules on debt and deficits have been temporarily relaxed during the pandemic to help stabilize the economy.

On the one hand, the document stresses that the EU's debt rule "has proven its flexibility" — an argument often used by those who say there is no need to raise debt ceilings. But it also says fiscal rules can be "developed further" to secure growth, safeguard debt sustainability and foster green investment.

The text also envisions the current EU pandemic recovery fund as "an instrument limited in time and amount," suggesting a rejection of permanently pooling debt risks in Europe.

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