Germany will go to the polls this Sunday and Canadians have good reason to follow the outcome very closely. As the leader of Europe’s pre-eminent economic and political power, the fate of Chancellor Angela Merkel and her center-right government will have important repercussions for the future of the European Union as well as relations with the United States and Canada. Whether you talk about euro zone bail-outs, the proposed European banking union, or transatlantic free-trade negotiations, not much gets done in Europe these days without German backing, let alone against Berlin’s objections.
Despite what is at stake internationally, Ms. Merkel has run a dull and lackluster campaign. Rather than focus on any polarizing political issues (i.e., how much of their wealth will German taxpayers need to transfer to keep the EU together?), she is instead relying on her strong personal approval ratings to secure another four-year term against Peer Steinbrueck, the gaffe-prone candidate from the opposition Social Democrats (SPD). This feel-good campaign approach seems to work. While the race will be closer than expected, there is a good chance that Ms. Merkel is getting re-elected on Sunday, either as part of another center-right government with the free-market FDP party or a “grand coalition” with the SPD.
For evident historical reasons, Germany is still uncomfortable with its new leadership role in Europe. While being an economic powerhouse, Berlin remains a relatively weak player in terms of foreign and security matters. At the recent G20 Summit, Germany was the only Western country not to sign a U.S.-sponsored declaration on the Syria crisis (Ms. Merkel did change her mind a few hours later after consulting with the rest of the EU). Berlin was also isolated from its traditional NATO allies when it abstained from the UN Security Council vote on Libya in March, 2011. Given that Ottawa lost to Berlin in its race for a seat on the current Security Council, Canadians can understandably claim that their country would have made for a more assertive Western representative at the top UN body.
On the economic front, ties between Canada and Germany are set to strengthen in the coming years, especially in the energy sector. The recent agreement between Canadian gas supplier Pieridae Energy and Germany’s E.ON utility to deliver approximately five million tons of LNG a year for 20 years is a crucial step in the right direction. In fact, Ms. Merkel’s controversial decision to phase out nuclear power makes this and other potential energy deals with Canada even more compelling: German electricity prices are expected to rise sharply, thus potentially threatening the competitiveness of the country’s flagship manufacturing and chemical industries. Geopolitically, Berlin looks to Canadian gas to reduce its dependency on Russia, which currently accounts for about 40 per cent of German imports. The same reverse logic applies to energy giant Canada, which is trying to diversify away from its over-reliance on the United States.
Given Germany’s position as a top global exporter, it should come as no surprise that Angela Merkel is the key European champion of transatlantic trade liberalization with the United States and Canada. In contrast, France and virtually all of the Southern European countries are much more hostile – as are wide parts of the German left-wing opposition. According to official estimates, the Canada-EU Comprehensive Economic and Trade Agreement (CETA) would boost Canada’s annual GDP by about 0.77 per cent (or $14.5-billion) while the EU economy would benefit to the tune of 0.08 per cent a year ($13.7-billion based on 2012 data).
Germany’s diversified economy – especially the famous medium-sized “Mittelstand” companies – promises potential Canadian partners attractive trade and investment opportunities. For their part, German business leaders are more than eager to strengthen their ties with Canada and are hopeful that the planned CETA deal will be finalized soon. After all, the recently launched EU-US negotiations over the proposed Transatlantic Trade and Investment Partnership will certainly drag on longer than the official October, 2014, target date. In this context, a successful Canada-EU trade deal would serve as a valuable boost for the TTIP negotiations and a reminder that major trade deals among the leading Western nations are still possible.
Ulf Gartzke teaches at Georgetown University’s BMW Center for German and European Studies and is the founder of Spitzberg Partners, a political advisory firm in New York.