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February 27, 2020

German polls point to red-red-green

As the CDU quarrels, a big shift that has taken place in German politics: the possible re-emergence of a majority to the left of the CDU. We qualify the statement because the numbers are all within polling error margins. Two of the three latest polls have the Greens, SPD and Left Party marginally ahead of the other three parties. It is fair to say, at this stage, that the combined total of SPD, Greens and Left Party is approximately the same as the combined total of CDU/CSU, FDP and AfD. That in itself is big deal, and a big shift.

Of course, a coalition of the right is not a politically possible construction. But a red-red-green coalition is. If the numbers add up, it may well happen. If the numbers don’t add up, there will have to be another centrist coalition, for example between the CDU/CSU and Greens. Depending on the numbers, a possible outcome is a coalition of climate-change deniers led by Armin Laschet. This coal coalition would include CDU/CSU, SPD and FDP.  

Under no scenario will the SPD provide the next chancellor. We thus ignore the debate in the German media on whether Olaf Scholz should be the SPD’s official candidate. The more important point is whether the SPD will support a coalition including the Left Party if this were numerically possible. We think it will. And the Greens are also far more likely to push through their policies in such a constellation.

This is the important background to all the other political stuff that is going on in Germany right now, including the contest for the CDU leadership. One issue on the minds of CDU delegates will be to prevent that left constellation from occurring.

This is also the backdrop to the suggestion by Scholz yesterday to allow the federal government to take over some municipal debt. Don’t get excited about it. It won’t happen because it would require a change in the constitution. It would affect the relationship between the federal government and the states, of which the municipalities are a part. 

There is no majority in the Bundestag for such a change, but it would be a clever political move by Scholz because it would help urban areas in the Ruhr and the Saarland where the SPD has lost voters to the Greens. It is best to think of it as the start of the 2021 election campaign. 

Nor would it imply a shift away from the black-zero policy, which Scholz supports. It would be a balance-sheet transaction. It would have an indirect effect on investment, as it would make it easier for some municipalities to partake in joint investment projects with the federal government. One of the reasons behind Germany’s dearth of public-sector investment has been the inability of towns to put up their own share in joint federal/regional investments. The result has been that some federal funds earmarked for investment have not been taken up. Scholz’ balance-sheet transaction would therefore be expected to have an indirect, probably small, impact on the overall German fiscal position.

It is best to think of this as a campaign issue. The SPD is trying to find a way to dissociate itself from the way the debt brake constrains investment, and this is their first shot at it. It won’t be the only one because the excessive debt of municipalities is not the main reason for Germany's chronic under-investment. The SPD’s new leaders support a net increase in public sector investment by some €500bn over 10 years. This seems a perfectly sensible number to us, some 1.5% of GDP. But it is not possible under the debt brake, no matter how many tricks you employ. The German government is already using various balance-sheet devices, like shadow budgets that do not count towards the official public-sector deficit. With his suggestion Scholz is scraping the barrel, trying to find the last remaining space to increase investment within the current fiscal framework. But it won’t do the heavy lifting to generate €500bn in new investment. 

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February 27, 2020

Greece's struggle to improve migrants crisis

Kyriakos Mitsotakis told migrants not to come to Greece if they will not qualify for asylum. This is a desperate plea in a desperate situation on the Aegaen islands, where migrants are cramped in overcrowded and unhygienic camps. The camps were meant for 8000 only, but now there are more than 42,000 living there. The Greek government plans to build new closed facilities on the islands of Lesvos and Chios to replace the camps, but it faces strong resistance from local communities. There is also only haphazard help from other EU countries.

The Greek government sent riot police to Lesvos and Chios against local residents who were protesting against the construction of the new closed facilities. Media images of riot police confronting citizens in rural communities perturb the public and could cost New Democracy politically, warns Macropolis. Yesterday officials tried to mend relations with local communities, but the government made it clear also that the situation was too urgent to wait for a dialogue to conclude. They instructed three companies to prepare the ground for the new centres. The opposition parties are all against the government's plans to deal with the migrants' dire situation, which include enhanced border controls, more returns and swifter asylum processing.

Greece has to cope with a huge rise in migrant inflows, according to UNHCR data. About 60,000 migrants have arrived by sea over the course of 2019, nearly double what the figure was a year before. Another 15,000 arrived by land. The arrivals from Turkey increased by 60% compared with the previous year. 

What about the other EU countries, which pledged their solidarity with Greece? France agreed in December to take in 400 migrants, Portugal agreed to take 1000. Finland decided this week to take 175 minors on top of the 850 from their quota. This is a small start at best, as there are currently over 5000 minors on the Aegean islands. We are still waiting for a new blueprint to deal with the migrant crisis at European level. This is not only to help the situation on the Greek shores, but also to review arrangements with Turkey as the country faces a new refugee wave from the Syrian war zone around Idlib. 

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