Analysis-Frustration grows inside EU as German infighting hurts block's goals

FILE PHOTO: Germany’s Chancellor Olaf Scholz attends a European Union leaders summit, in Brussels, Belgium December 14, 2023. REUTERS/Yves Herman/File Photo

By Jan Strupczewski

BRUSSELS (Reuters) – Once considered a vital engine of the European Union, Germany is causing growing consternation in capitals across the bloc as disagreements in its ruling coalition spill over to thwart key EU policy goals.

The internal German bickering and its European echoes are seen in Brussels as a symptom of something deeper: Germany’s unresolved quest for a new economic model after the Ukraine war put an end to the cheap Russian gas and largely unfettered trade channels that fuelled its export-oriented industry for decades.

FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, July 14, 2021. REUTERS/Yves Herman//File Photo

“Much more than others in a phase of existential angst,” one EU diplomat characterized Germany’s condition. “They fear that the software itself is broken – and on top of that, you get the different logic from coalition members.”

When Social Democrat Olaf Scholz struck a coalition deal with the environmental Greens and economic liberals of the Free Democrats (FDP) in late 2021 it was clear the pact had a rocky way ahead, but few predicted their differences would emerge at the EU level.

Since then, only the Greens have managed to roughly keep their popularity. Scholz’s Social Democrats are down to 14-15% from almost 26% in the election and support for the smallest, the FDP, has more than halved to 3-5% – meaning it would not even get into parliament if elections were held now.

“There is a causality there – precisely because the FDP are being snowed under domestically, they are looking for a way to raise their profile in carefully selected EU files to rally their electorate,” a second EU diplomat said.

German officials point to the constructive role Berlin has played in recent EU decisions to secure Ukraine aid or reform rules on budget deficits. But in other areas the differences have made it harder for the EU to implement its agenda, including its green deal.

The impact became apparent last March, when Germany’s FDP Transport Minister Volker Wissing at the last minute reneged on a deal Germany and other EU governments and lawmakers struck in 2022 to curb CO2 emissions from cars, shaking partners’ confidence in Berlin.

“Why would we want to do a deal with them if we cannot trust Germany will stick to it?” the EU diplomat said.

Complicating matters further, a German constitutional court ruling last November blew a 60 billion euro hole in the German budget, in an embarrassment to FDP leader and German Finance Minister Christian Lindner.

“That was the tipping point,” a second senior EU diplomat said. “Now everything that has economic implications is extremely difficult.”

More recently, Germany’s FDP-led transport ministry has again forced last minute changes to an EU law on curbing CO2 truck emissions, while labour ministry’s objections contributed to the scuppering of an EU law that would boost gig workers’ rights.

Germany also helped sink an EU law that would require large companies to determine if their supply chains use forced labour or cause environmental damage.

“If a result is bad, you have to be able to say no,” German Justice Minister Marco Buschmann, a close ally of Lindner, told Spiegel magazine this week. “Just because an idea has been negotiated for a long time at EU level does not automatically mean it is good,” he said.

OPENING DOORS

The German government had no immediate comment on EU concerns but a government source told Reuters that, while internal coalition disputes made Germany abstain in recent EU votes, it was far from being the only “blocker” of EU projects.

For example, a long-mooted EU-Mercosur trade deal is on hold due to a variety of objections in European capitals.

But while EU diplomats acknowledge that not only Germany is raising objections to various EU policies, they say its actions have opened the door for others to do the same. And crucially, it was the last minute changes that created uncertainty if deals would be respected.

“You need to have trust in the agreements you make,” Michael Bloss, a German Green lawmaker in the European Parliament, told Reuters. “It is difficult if one member state is creating chaos by not upholding agreements they have made before.”

Germany’s size – which is reflected in its voting power – makes it difficult for the rest of the EU to work around it if it decided to block a piece of EU legislation.

“It’s getting worse and worse. We in the EU are paying the price for them not being able to manage their own coalition,” a third EU diplomat said.

Some officials pointed out however, that the FDP was effectively fighting for the votes of the German industry that is struggling to reinvent itself after higher energy prices robbed it of one key competitive advantage.

Jeromin Zettelmeyer, the head of the Bruegel think-tank, noted that the FDP opposed German subsidies to energy for industry, a stance that should be welcomed by others in the EU who cannot afford such polices.

“Germany is essentially torn between not favouring its own industry at the expense of the EU and at the same time preserving its economic model, which I would define as an industrial model,” Zettelmeyer said.

“It is a balancing act. The question is can you adapt the model rather than completely throw it out. It requires time and money. This is where the conflict of interest with the rest of the EU comes from.”

The European political calendar, including EU parliament elections due in June, does not help as politicians of all colours fear that a voter backlash to the EU’s net-zero carbon economy goal will play into the hands of far-right populists in Germany and elsewhere.

That, the German government source acknowledged, was one source of tensions within the coalition, adding: “we hope that after European election situation will get better.”

(Reporting by Giselda Vagnoni in Rome, Michel Rose in Paris, CHristian Kraemer and Andreas Rinke in Berlin, Kate Abnett, Julia Payne and Jan Strupczewski in Brussels; Editing by Tomasz Janowski)