Germany Is Becoming a Roadblock for More and More EU Business

Jorge Valero, Kamil Kowalcze and Michael Nienaber
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(Bloomberg) -- The unpredictable behavior of Germany’s ruling coalition is becoming a disruptive influence in Europe and raising hackles across the continent.

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A last-ditch move this month to block a European Union push to phase out combustion-engine vehicles was only the latest example. On issues ranging from financial aid for Ukraine to reform of state-aid and budget rules, Germany’s EU partners and officials in Brussels have become increasingly frustrated with Chancellor Olaf Scholz’s center—left alliance of his Social Democrats, the Greens and the business-friendly Free Democrats.

The unwieldy nature of the three-party coalition is part of the problem, according to people familiar with EU decision-making processes. Members of Scholz’s government are sometimes slow to agree among themselves on the most basic elements of proposed legislation and when they do it can be either too vague or too late, said the people, who asked not to be identified discussing confidential negotiations.

At a time when the EU is anxious to show a united front on the war in Ukraine and struggling to adapt to the upheaval triggered by Russia’s invasion, Germany’s conduct is seen as especially unhelpful. It also stands in contrast to public comments by Scholz and his ministers, who portray Germany as a pillar of EU unity and integration.

“Germany is giving mixed messages about its own interests as well as the larger European interests,” said Sudha David-Wilp, regional director of the Berlin office of the German Marshall Fund. She highlighted “cracks within the coalition” appearing after a year and three months in office.

“Germany has often said that it does good things for Europe, is embedded in the EU, but often decisions are more about German interests which really don’t help European interests,” David-Wilp added.

Asked about Germany’s working relationship with Europe and the perception that it’s hindering EU business in some cases, a spokesman for Scholz said that the government “in general does not comment on such assessments and statements.”

Economy Minister Robert Habeck, a member of the Greens who is also the vice chancellor, pushed back against the idea that the ruling coalition is dysfunctional and may be testing the limits of its usefulness. He said a two-day cabinet retreat north of Berlin that ended Monday could help give the government some fresh impetus.

“The coalition works very, very well together professionally,” Habeck said Thursday. “There is also a very fine human interaction.”

The row over the combustion—engine ban that Germany provoked this month has been a particular source of bitterness in Brussels and beyond.

Only days before a final vote, FDP Transport Minister Volker Wissing effectively blocked the hard—won agreement to decarbonize the automotive sector, considered a key component in the EU’s drive to achieve climate neutrality by 2050.

As a condition of German consent, Wissing insisted that the European Commission provide a promised proposal on how new combustion—engine cars running exclusively on so-called e-fuels — made using renewable electricity and carbon captured from the atmosphere — can be registered after a 2035 cutoff date.

Critics accused the FDP, the junior partner in Scholz’s alliance, of exploiting the situation in a bid to woo voters and raise its profile in the government following a series of poor performances in regional elections.

Teresa Ribera, a deputy Spanish prime minister, said that modifying the proposal at such a late stage in the process could set a negative precedent and disrupt the way the EU crafts key policies in the future. It also risks sending confusing signals to investors and industries planning for the shift to clean energy, she added.

“What if other governments decide to do something similar on whatever issue? The procedural rules are for everybody,” Ribera said Wednesday in a Bloomberg interview.

Pascal Canfin, a French liberal who chairs the EU Parliament’s environment committee, was even more outspoken, warning Scholz he might go down in history “as the one who would have killed the green deal.”

“The government is currently in close contact with the European Commission on the issue of e-fuels,” the Scholz spokesman said when asked about the combustion-engine dispute.

Beyond the spat over e-fuels, Germany has also been less than cooperative in efforts to reform the fiscal rules enshrined in the Stability and Growth Pact, according to EU officials and diplomats.

Finance Minister Christian Lindner, the chairman of the FDP who styles himself as a guardian of stable finances, is wary of attempts to relax debt and deficit rules and for weeks did not engage in the reform efforts, the officials and diplomats said on condition of anonymity.

Berlin’s apparent intransigence is complicating a push to have a new framework in place by early next year, before the budget restrictions are reactivated following their suspension to deal with the fallout from the coronavirus pandemic.

“On fiscal rules, the German government has a position,” Joerg Kukies, Scholz’s top economic adviser, said Thursday at a forum in Paris. “So we have given input to the commission on the proposals on the Stability and Growth Pact which is completely consensualized within the German government.”

Some in the ruling coalition acknowledged that Germany would have to show a degree of flexibility with EU partners seeking to ease the stability pact’s rules if it wants a relaxation of state—aid regulations, according to government officials.

Scholz’s administration has renewed efforts to loosen restrictions on state aid in response to Joe Biden’s climate package. But internal disagreements within the coalition prevented the government submitting its contribution when the Commission first asked member states to provide input, people familiar with the matter said.

While the FDP wanted exceptions to include non-ecological projects — like expansion of highways — the Greens would only back a loosening of state-aid rules if they applied to sustainable green investments, the people said.

‘Normal Politics’

Lindner has also clashed with EU partners over whether financial aid for Ukraine should take the form of loans or grants.

While Germany argued for grants, other member states pushed for loans and the disagreement delayed the payment of some of the €9 billion promised to the government in Kyiv for last year.

“With regard to further support for Ukraine, the EU is more united than ever,” according to the Scholz spokesman. “The EU will continue to support Ukraine politically, economically, militarily, financially and in humanitarian terms for as long as necessary.”

Kukies played down any differences within the ruling coalition and how they could impact EU policy making, arguing that they’re part of “normal politics.”

“Everyone who reads the electoral platforms of the parties forming the German coalition knows that there are differences in approaches” to European issues, he said.

--With assistance from Ewa Krukowska, John Ainger, Petra Sorge and Arne Delfs.

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