What Would a New Merkel-led Grand Coalition Mean for Development? Four Recommendations for the New German Government

Yesterday, the German Social Democrats (SPD) voted in favour of pursuing in-depth coalition talks with Angela Merkel’s Conservatives (CDU). Although the chancellor’s battle for political survival is far from over (as the final coalition agreement will have to be backed by the majority of SPD’s 443,000 party members), it is likely that we will see a remaking of a grand coalition. Here we look what that would mean for Germany’s leadership on development.

After coalition talks for a “Jamaica-coalition” with the Greens and the Liberals failed in mid-November, nearly four months after the elections, Angela Merkel’s CDU hadn’t formed a new government. Having turned to the SPD since, with which she governed twice already, and which initially rejected another term of a grand coalition, it appears as if they’ve now reached a preliminary coalition agreement for another grand coalition which does look promising for development. However, for the actual in-depth negotiations, we have four policy recommendations which should find their way into the final coalition contract:

1. Continue to welcome migrants and improve integration—this will be a win-win for both migrants and Germany
2. Use increased defense spending for German support for UN peacekeeping
3. Continue to invest in global public goods for the environment through subsidies for renewables and energy R&D
4. Use the billions of freed up ODA due to decreasing refugee hosting cost to increase funding for multilaterals

Is Germany’s leadership on migration under threat?

Germany is a development leader, mainly due to its migration policy and its openness to refugees and asylum seekers, as this year’s Commitment to Development Index (CDI) has demonstrated. Migration and integration are dominant themes in Germany’s political discourse, which is not highly surprising after Germany’s intake of a very high number of refugees and asylum seekers in 2015. As a consequence of this and the concomitant success of the right wing populist party AfD entering parliament for the first time, the CDU has now taken less liberal positions on migration. The main battleground during coalition talks was how many additional refugees Germany should accept in the coming years. The final preliminary coalition agreement states that the number of refugees should not exceed 220,000 annually (this excludes labor migrants and the potential additional people seeking asylum from persecution, which cannot be capped for constitutional reasons). Even adding labor market migrants on top, this would be a massive decrease from the record 2 million immigrants that came to Germany in 2015 (we calculate this to be equivalent to “880,000 poverty weighted migrants” from the extremely poor countries, because of the many refugees coming from poor Syria).

In order to limit the numbers to this cap, several measures are listed. These include:

• Better international development cooperation
• Increased humanitarian commitment
• Bigger commitment to international peacekeeping (incl. international police missions)
• Fair trade and agricultural policy (fair trade deals)
• Intensified contributions to the protection of the climate
• Restrictive arms exports

We welcome all these commitments and measures, which are in itself are all part of our Commitment to Development Index (CDI). However, the fact that these policies are linked to the reduction in the numbers of migrants is problematic:

The preliminary coalition agreement aims to set up a commission to address the refugee crisis “root causes.” A recent paper by CGD’s Michael Clemens finds that aid spending is not generally in line with the root causes rhetoric and that the sectoral split of aid to migrant-origin countries is no different to that of aid spending other countries. Also, they find aid can only deter migration, and improve growth, employment, and security to a limited degree. As research suggests, people are more likely to migrate when their country of origin gets richer, contrary to the belief of many donors that using Official Development Assistance (ODA) to improve living conditions in sending countries will deter people from migrating.  Donors should use aid not to deter migration but make it better for both host country and migrants.

The coalition agreement leaves the backdoor open for welcoming labor migrants (as they are not included in the suggested cap of 220,000 migrants annually) which an aging society like Germany could benefit from. While the preliminary coalition agreement presents several additional measures to support economic performance in Germany, research suggests that using the potential of its refugees and migrants can be beneficiary to the economy. Therefore, the artificial distinction between labor migrants, which according to the preliminary coalition agreement should be attracted to the German labor market, and asylum seekers and refugees is contradictory. Unlocking the potential of refugees to contribute to the labor market and the host state through tax and social security contributions will be beneficial to the host nation, the migrant and the country of origin (via remittances. etc.). We therefore encourage the grand coalition to keep its openness towards migrants, not only to live up to its humanitarian obligations but also to support its labor market with both low- and high-skilled workers.

One group of skilled workers desperately in demand are nurses and caregivers, which is reflected in the fact that the care sector is discussed with a whole paragraph in the preliminary agreement. By 2030, the German health industry is estimated to lack around 3 million skilled workers. One step towards a long-term, better balanced and sustainable health sector would be the introduction of a Global Skills Partnership. Pilot projects could combines training for nurses or caregivers funded by a donor country (Germany) with the permit to work temporarily in this country. Such mechanisms benefits both Germany and the chosen country of origin, decrease pressure on health systems in aging societies and equip migrants with skills and experience.

Leadership on security issues is welcome

Merkel’s conservatives want to double defence spending to reach 2 percent of GDP by 2024. In their manifesto, the SPD proposed to increase defense budget, but was strictly against doubling spending on defense. However, the party does highlight the need for more international cooperation in defense. There might be an opportunity here: Germany currently only spends only 0.03 percent of GDP on UN peacekeeping—less than the OECD average, and at a time when the UN peacekeeping budget is facing deep cuts. Germany should definitely increase its defense spending for peacekeeping—this is something everyone can agree on.

Further, the coalition aims to reduce and limit arms exports. As the CDI 2017 demonstrates, this is an important step as Germany has room for improvement in restricting arms exports  to poor and undemocratic countries. In the past, it has sold arms to countries which are supporting sides in the Yemeni Civil war. Its proposed export ban to participants in this conflict is a step into the right direction. Also encouraging are the commitment of both the CDU and SPD to work towards a joint European strategy on arms exports.

Germany should step up its commitment to the environment

Experts predict that it is unlikely that Germany will meet the 2020 Paris agreement of reducing emissions by 40 percent. The new coalition is committed to close the gap between current emissions and their 2020 pledge as quickly as possible. But, even though it is shameful that a rich country like Germany will not meet its pledge and expects developing countries to meet theirs, Germany only emits 2 percent of greenhouse gases globally and might be in a better position to provide global public goods to lower greenhouse gases. The coalition wants 65 percent of energy to come from renewables until 2030, mostly through photovoltaics and offshore wind energy. We hope that this will be achieved through renewable energy subsidies, which are a global public good, and many economists agree that high solar energy subsidies in Germany have produced net social benefits for the world. A recent study estimated these benefits to be around $18.8 billion. The same study quantified the effect of Germany’s national subsidies for solar adoption globally and found that roughly a third of solar adoption due to technical improvement result from German subsidies. Most of the solar adoption occurs outside of Germany—those spillovers are classic global public goods and beneficial to developing countries.

Better international development cooperation is welcome, but what does it mean?

Germany will have to massively ramp up overseas development spending, and fast, as the Coalition aims to continue to meet its 0.7 percent commitment, the absolute value of which will only increase due to robust GDP growth at 2 percent. But more importantly, the 0.7 percent target was only met for the first time in 2016, because of a rapid increase in refugees hosting costs; Germany spent $6.2 billion (or 25 percent) of all their ODA in 2016 on refugee hosting costs. In order to maintain the 0.7 target when only 220,000 refugees arrive, overseas development assistance would have to increase rapidly. There is a unique opportunity to redirect this $5 billion or so to multilaterals: the preliminary coalition talks frequently mention better aid, more international cooperation and so on. Yet, Germany only spends about $5 billion (or 20 percent) of all ODA on multilaterals (international average: 29 percent of all ODA is multilateral). Germany’s own development agency will likely be overwhelmed by such a rapid increase in funding. All else being equal spending through multilaterals has advantages: one can piggyback on the existing infrastructure of multilaterals, that have the economies of scale. And a recent review paper on multilateral vs. bilateral aid found that multilateral spending is less politicised, more demand-driven, more selective in terms of poverty criteria, much less fragmented and is better in terms of global public goods provision. Germany should live up to its repeated calls for international cooperation that can be found in both party manifestos and the coalition agreement, and channel the freed up budget for refugee costs to multilaterals.

What’s next for the coalition agreement?

After last night’s SPD party congress, the conservatives and social democrats will now start negotiating on the final coalition deal that has the potential to have a big impact on development. Still, a final agreement and ultimately a new government could be in jeopardy as the leader of the SPD initiated a game of chicken: the party’s president decided that its members should have the final say about whether or not to accept the coalition agreement, and if the conservatives do not make sufficient concessions in the negotiations ahead, and the party members reject the coalition agreements, there will likely be re-elections. However, experts believe the party base will agree to the coalition agreement given that in 2013, 78 percent of party members voted for a renewal of the grand coalition. If Germany indeed has a new government by Easter, it should ensure to continue its path towards being a global leader on development and the provision of global public goods, as outlined in the preliminary coalition agreement.