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What the German election, Scholz and more means for the EU


A view of EU and German flags over the Reichstag building, the seat of the German Parliament.

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LONDON — As Germany prepares for an overhaul in its political status quo, analysts are looking at what impact the next government could have on the European Union.

After 16 years of Angela Merkel in power, Europe’s largest economy went to the polls Sunday to elect a new chancellor.

Preliminary results show that the Socialist Party, SPD won with only 25.7% of the support. It is now trying to form a coalition government with the Green party and the liberal FDPThis. Merkel’s conservative Christian Democratic Union/Christian Social Union alliance, which has been dominant in German politics for decades received only 24.1%.

Olaf Scholz (current finance minister of the SPD) is the candidate for chancellor.

CNBC spoke Monday to Daniela Schwarzer of Open Society Foundations about Scholz’s relations with Europe.

Schwarzer pointed out that Scholz is still far less experience than Merkel who played an important role in European politics over the decades.

“We may see a few months in particular — also given the French election coming up next spring — where things may be less smooth than they usually would be,” she added.

Germany has been a founding member of the EU for many years and is therefore able to play a significant role in European policymaking. Merkel was the chancellor during the crisis that saw the EU respond to the global financial crisis as well as the sovereign debt crisis, crisis of migration and the recent coronavirus pandemic.

There are still questions as to what the German chancellor’s role will be in promoting deeper integration between the 19-euro countries.

“While the mood music is going to be a bit more positive towards some of the things that the EU wants, I think the ability of the German chancellor to act decisively — that’s going to be pretty constrained,” Robin Bew, managing director at the Economist Intelligence Unit, told CNBC’s “Squawk Box Europe” Monday.

The coalition once it has been formed will probably lean more in favor of EU integration than the past. But he also stressed the fact that managing a coalition of three parties will prove difficult due to the larger range of views.

Bew said that he doesn’t believe you will find strong leadership.

European issues

Although Germany is well-known for supporting a strict fiscal policy throughout the bloc, it is not clear if Germany will be supportive of changes to the debt limit.

The EU also decided in July 2020 that it would raise funds jointly through public markets for the recovery of the pandemic-affected region. The so-called Recovery Fund was pitched as a one-off measure to appease fiscally-conservative nations, such as the Netherlands, but some experts wonder whether the EU could make it a permanent tool — something that would require the backing of the new German chancellor too.

Scholz of the SPD argues that Europe’s fiscal rules allow countries to spend more during a pandemic. Scholz also said that he doesn’t plan to raise EU debt in the future and has not answered questions.

Meanwhile, the FDP, which is likely to feature in the next German coalition, has “turned rather Eurosceptic in terms of deeper euro zone integration,” analysts at the consultancy firm Eurasia said in a note on Monday.

A dramatic change in the German position on EU’s debts and fiscal rules would be unlikely. However, it is possible to make the Recovery Fund permanent part of EU fiscal architecture.

Europe’s ambitious efforts to be carbon neutral by 2050 is another issue. European legislators are currently discussing a plan to cut greenhouse gas emissions by 55% or more by 2030. Germany’s prominent automotive sector will play a crucial role in achieving the green goals.

Eurasia described Scholz of the SPD as a pragmaticist, saying that he is open to using any wriggle room for financing Germany’s transition from net-zero to net-zero.

David Sassoli (President of European Parliament) was one of very few European politicians to comment on the results. Scholz congratulated him on his win and stated: “After the historic crisis, there’s no time for loss: Europe requires a solid and reliable partner Berlin in order to continue our joint work towards a sustainable and green economic recovery.”