The European Consequences of Germany’s Election

ISTANBUL – Nearly a century ago, in 1919, John Maynard Keynes analyzed the economic consequences of the peace following Germany’s defeat in World War I. To be sure, the consequences of Germany’s general election on September 22 will not be nearly as momentous. But the outcome will not be as inconsequential as most analysts currently claim.

For starters, even if the current Christian Democratic Union (CDU)-Free Democrat Party (FDP) coalition forms the next government, Chancellor Angela Merkel could make longer-term and more courageous decisions without having to worry about the immediate electoral impact. She would be able to pursue a two- or three-year program, instead of her current four-week strategy.

Merkel’s post-election agenda might still be very cautious, emphasizing medium-term fiscal consolidation for Germany and the eurozone as a whole at the expense of boosting employment and growth. But a re-elected Merkel would no doubt be willing to proceed, at least by small steps, on the creation of a European banking union, including a resolution mechanism that draws on eurozone-wide resources.

Moreover, even if Merkel leads the same political coalition, she would more strongly support eurozone schemes to encourage lending to small and medium-size enterprises, and European Union education programs, such as Erasmus. She would also be willing to work on institutional reforms aimed at closer coordination of EU member states’ economic policies.