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Transatlantic prospects for the New Year

As 2010 begins, Dr. Jackson Janes from the American Institute for Contemporary German Studies explores how differing political priorities in Berlin and Washington could affect the transatlantic relationship this year.

Transatlantic prospects for the New Year
Photo: DPA

The first few days of the New Year seemed to represent different worlds in Berlin and in Washington. While the American agenda was driven by the attempted terrorist attack on a plane in Detroit, the killings of CIA officers in Afghanistan, and the blame games about how to respond being played out between the Republicans and the Democrats, Germans were preoccupied with the non-functioning smart-chips in their ATM cards and the continuing bickering amongst political parties over domestic policy priorities. This is likely shades of things to come in 2010.

In both Germany and the United States, the year is going to be marked by an increasingly strident struggle over the political agenda, within both the domestic arena as well as across the Atlantic. Forging a consensus in this climate is going to be very difficult in both cases.

In the US, the themes for the mid-term election in November have been clarified during the past week. The continuing fragility of the economy – especially with unemployment over 10 percent – will dominate on one side of the battle. Whether the expected passage of a new health care bill will yield evidence of improvement in time for the early November elections is questionable.

The other dominant side will be over the responses to dealing with the threat of terrorism. The upcoming trials of terrorists in New York just blocks from the pit where the twin towers stood will offer grist to critics who see the Obama administration as “soft” on terror. The status of Afghanistan, Iraq, and Iranian threats of achieving nuclear “break-out” capacity will also shape the political fronts which are already hardening.

In Germany, the political battle lines are visible within the governing coalition as well as between government and opposition. The traditional conferences of both the Free Democrats and the Christian Social Union this past week both delivered evidence of tensions across an array of issues, domestic as well as foreign policy. The arguments reflect efforts to strengthen the respective branding of these two smaller governing coalition partners among their constituencies. During a time where voters are becoming increasingly disenchanted with political parties, those efforts may be needed but they also make consensus-building that much more difficult.

Flashpoint Afghanistan

Just as foreign policy issues played little role in the September elections in Germany, the 2010 agenda will be primarily domestic. Chancellor Merkel must make a decision about the continuation of Germany’s presence in Afghanistan following the upcoming conference in London at the end of January. That decision, whatever it will be, offers a battleground for the Social Democrats as they seek to reverse their losses from last year. But there are also voices on the right who are concluding that the effort in Afghanistan has reached its limits, as far as Germany is concerned.

As Obama has begun to significantly increase the US presence in Afghanistan, the German debate will be a factor in the coming months between Berlin and Washington. But beyond that issue, the German foreign policy agenda will be economic in focus as Germany looks to secure an international climate for its export-driven economy to best succeed. That arena will be no less contentious at a time when tensions both within Europe and across the globe will remain driven by the uncertainties ahead. Those tensions are already visible in the eurozone in the economies of Greece, Spain, and Ireland, not to speak of Italy. The fragile economies in Eastern Europe also generate questions about both economic and political stability in the region.

At stake this year will be whether the strong pull of domestic preoccupation on both sides of the Atlantic will undermine the need for asserting a common response to both national and global challenges. We saw such an opportunity to shape such a response fail in Copenhagen last month. Much of that had to do with domestic politics, be it in Europe, in the US, China, or in other emerging economies. But forging a consensus on this issue, as urgent as it may be, remains hostage to these conflicts.

Another platform this year will be the rollout of a new NATO strategy. That struggle to forge a consensus within the most successful alliance in history will also be driven by the respective debates in 28 member countries. Even two decades after German unification the consensus on the need for and use of the alliance remains incomplete.

Within Europe, now in a Lisbon Treaty framework, the construction of common policy efforts is supposed to be enhanced. Germany’s role will continue to be a central one in determining that prospect, particularly in defining and implementing a common defence and security platform on which action can be taken. Apart from Afghanistan, one pressing opportunity would be in dealing with Iran’s race to go nuclear, but there will be many others forthcoming.

Domestic trumps transatlantic

Throughout all these challenges lies an overarching one: securing the domestic support to meet them. If an agreement on them cannot be developed at home, it makes it that much more difficult to build one with other partners. One glaring example of a lack of support was watching a few members of Congress wandering around the Copenhagen Climate Summit telling anyone who would listen that President Obama has no authority to make promises for the US government on climate change policy. This also happened with responses to the economic crisis. Add in the actions of political leaders pandering to protect their own political futures, and the result can lead to gridlock.

Amidst this climate we see on the one hand how interdependent we have become on decisions taken by an increasing number of important players on the global stage. And yet we can also see the disconnect so often among the respective national debates going on around these decisions. It is because we are so interdependent that we need to listen not only to ourselves but also to the many other important debates going on particularly in those countries which are defined as partners.

As we started out the New Year, Germans and Americans were in some cases talking about some common concerns while also preoccupied with their own local worries. And yet it is because those concerns and worries are increasingly interconnected that we need to continuously remind each other why the choices and decisions we make should and do matter. In this difficult year ahead, listening will be a more important part of communicating, as difficult as that can sometimes be.

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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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