After 16 years

New leadership in Berlin has consequences for India

Olaf Scholz has been sworn in as chancellor of Germany, ending the 16-year tenure of Angela Merkel. Ms Merkel narrowly missed — by just 10 days — the record for Germany’s longest-serving post-war chancellor, held by her political mentor Helmut Kohl. Germany is a country that prizes continuity: For the past 40 years, just three individuals have occupied the chancellery. Indeed, the post-War German republic has had just nine chancellors, including Mr Scholz. Yet even aside from that, Ms Merkel can be assured of her place in history. Her long tenure has seen Germany emerge from the bruises of reunification, under Kohl, and reform, under his successor, Gerhard Schröder. A combination of high productivity, restrained wages, and a euro that is undervalued when compared to the strength of the economy, has allowed it to demonstrate strong and sustained growth in an era when most other countries, aside from China, are struggling with their economic models.

Ms Merkel’s time in office saw her take big and controversial decisions, such as her decision to admit Syrian refugees to the country. Yet perhaps the one that will cause the most headaches for her successors is the plan, now a decade old, to phase out nuclear power in Germany, leaving it dependent on renewables and natural gas. As a consequence, Germany not only has the highest electricity prices in Europe but also is its largest emitter of carbon. The new coalition, which has taken office, includes the Greens, who will seek to prioritise decarbonisation. But the absence of nuclear power from the mix will mean keeping the lights on during Germany’s green transition will be very difficult.

 

The dependence on natural gas, built into Germany’s current energy plans, has also complicated Ms Merkel’s foreign policy legacy. At a time when the Russian leadership is acting and sounding particularly belligerent about Ukraine, Mr Scholz will have to contend with strong pro-Ukrainian sentiment in Europe as well as the German economy’s need for Russian natural gas. In the worst case, Germany will once again be forced into being a buffer state between the United States and Russia. Mr Scholz’s own coalition may fracture over this issue, given that his Social Democrats are historically much more dovish towards Russia than its junior partners, the Greens and the right-leaning Free Democrats. Similar problems will emerge in terms of tackling China, which is also a problem that Ms Merkel shied away from. French President Emmanuel Macron has no trouble declaring that China is a systemic rival — which, indeed, is the European Union’s (EU’s) official view. But Ms Merkel has always pushed the EU towards a somewhat more placatory role towards Beijing.

Partly this is because many of Germany’s world-beating middle-sized enterprises rely on supply chains that are centred on mainland China. It remains to be seen how the new coalition — where, again, the Greens have a stronger view on Beijing than the Social Democrats do — will manage this relationship. The Greens have supplied the coalition with its foreign minister, but under Ms Merkel foreign policy was largely run out of the chancellery. Germany is India’s largest trade partner within Europe and a significant contributor to manufacturing FDI within India. The choices made by Mr Scholz’s cabinet — particularly with regard to trade, green finance, and supply chains — will certainly be consequential for investment and growth in India. The new German cabinet’s first months will be closely watched from New Delhi.