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Can Berlin meet American expectations?

Angela Merkel’s speech to the US Congress on Tuesday is an honour for both the chancellor and Berlin. But her trip to Washington comes at a price, believes Dr. Josef Braml from the German Council on Foreign Relations.

Can Berlin meet American expectations?
Photo: DPA

It’s a tremendous honour for Chancellor Angela Merkel to address the US Congress this week, considering she’ll be the first German leader to do so since Konrad Adenauer in 1957. But the invitation from Speaker of the House Nancy Pelosi undoubtedly comes with strings attached. It’s a gesture that’s expected to be reciprocated. The message is clear: the German government is supposed to shoulder its part of the burden for America’s international commitments.

The reason for the invitation to Washington is that scepticism is growing amongst Americans about their country’s engagements in Iraq and Afghanistan. It’s especially the Democrats – with Pelosi representing the party’s left wing – who have no stomach for wars at the far ends of the earth. They want their government to put more money into health care reform and the creation of jobs at home. And it’s exactly the people without health insurance or those that are unemployed because of the global economic crisis that elected Barack Obama. The US president has to show them he’s making progress. Otherwise he’s going to get a political slap in the face during the mid-term elections in 2010.

During her trip to Washington, Merkel will come face to face with America’s demands – either while visiting Congress or meeting with Obama afterward. The US leadership could ask for more German money to stabilise Pakistan, a bigger contribution to Iraq’s reconstruction or more German troops for Afghanistan. The United States also wants Germany to support tougher sanctions to keep Iran from developing nuclear weapons. Washington patiently waited the outcome of Germany’s general election in September, but following Merkel’s re-election the honeymoon is now over. Berlin is going to have to deliver.

If Merkel brushes off American demands, Germany could quickly find itself sidelined in international affairs. Berlin is only important if it’s willing to help carry the responsibilities of global leadership. If not, Germany will be condemned to remain a spectator in the future.

When it comes to the financial and economic crisis, the Americans also expect Germany to spend more to get the global economy back on track. If the chancellor once again calls for budgetary discipline while pointing to the risk of inflation, she’ll be walking on thin ice in Washington.

As for climate change, domestic politics is preventing the United States from taking the leading international role the chancellor and other European leaders want America to take. Obama is having trouble introducing new climate protection laws because of fears about their economic cost. His administration is also preoccupied with other important legislation like health care reform. So it’s unlikely Merkel will get very far with demands for the United States to do more to combat global warming.

And with the United States likely to reject ambitious CO2 reduction targets at negotiations for a successor to the Kyoto treaty in Copenhagen, there could be an increasing strain on transatlantic ties in the coming months.

Dr. Josef Braml is a member of the Transatlantic Relations department of the German Council on Foreign Relations. Translation by The Local.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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