Federal state: The traffic light wants to drill thick boards in the EU

The light came up faster than expected, and that's a good thing.

Especially in turbulent times, Germany and the EU need a federal government in Berlin that is capable of acting.

The future traffic light coalition delivers positive surprises, but leaves some question marks among the EU partners.

One of these positive surprises is the clarity with which the SPD, Greens and FDP have committed themselves to climate protection as “top priority”.

Climate protection ensures "freedom, justice and sustainable prosperity".

He is supposed to be the bond that holds the coalition together.

However, it is questionable whether this formula will work for four years or even be a solution for Europe.

In any case, it can only open up in the long term.

In the short term, ambitious climate protection will result in restrictions on individual freedom and economic losses, as well as raising difficult questions of burden sharing.

But a successful German traffic light could shape the whole of Europe.

The federal state is a goal in the coalition agreement

Another surprisingly clear announcement: the EU should develop into a federal state, subject to subsidiarity and proportionality.

A constituent convention is to prepare the treaty amendments.

The unanimity rule in the common foreign and security policy is to be dropped.

No thin boards.

Anyone who, like the coalition partners, really wants to strengthen the EU Parliament must give it budgetary rights.

There is no consensus in Germany about any of this.

Europe should return to the top of the world.

An investment initiative with a “focus on projects with added value for the EU as a whole” will ensure this.

This includes joint research and development efforts, subsidized industrial policy projects and closing gaps in transnational rail, data and energy networks.

That is all well and good, but many pressing questions remain unanswered.

Will Germany build the feeder lines to large cross-border infrastructure projects such as the Brenner Base Tunnel?

Is the Fehmarn crossing in place?

How does the new federal government intend to prevent the joint exit from nuclear and coal power from tearing apart the fragile European power grid?

Where the investments are to come from remains open in the contract

And above all: How can the planned investment boom be financed?

The coalition agreement makes it clear that the energy transition and modernization will require funds “on an unprecedented scale”.

The tax screw should not be turned, so a creative use of the debt brake should free billions.

Parts of the corona debts taken on between 2020 and 2023 are to be diverted to climate projects.

Special funds are to be used more, and technical adjustments, for example in the cyclical adjustment procedure, are to open up additional fiscal leeway.

These measures are de facto softening the debt brake.

It will therefore be difficult for the new federal government to demand budget discipline in the other EU states.

The Stability and Growth Pact is to be retained as the “basis” of debt sustainability.

But there should be a further development that should "ensure sustainable and climate-friendly investments".

That, too, is de facto a softening.

There is scope for a policy in favor of the southern EU countries

There shouldn't be any new liabilities and transfers. The NextGenerationEU (NGEU) fund is an "instrument that is limited in terms of time and amount". There is no longer any talk of joint unemployment insurance from the SPD election campaign. That should please the “thrifty 5” Denmark, Finland, the Netherlands, Austria and Sweden. But when it comes to securing bank deposits together, there should be no “full communalisation”. That leaves room for maneuver.

There are no proposals in the coalition agreement to reform the euro zone, which could prevent a new euro debt crisis in the event of rising interest rates.

This is a problem because the traffic light program could force monetary policy to act.

If the promised investment boom meets the realities of an aging society and omnipresent shortages, then there is a threat of overheating with inflationary tendencies across Europe.

This risk is increased by socio-political projects.

In addition to the revision of the Hartz laws, the central project is a very significant increase in the minimum wage, which is to grow by 25 percent to 12 euros.

This measure will lead to wage pressure well into the German wage distribution.

The era of low wages could be over with a higher minimum wage

This means that the era of low wages in Germany could come to an end.

Whether this will make Germany more popular in other EU countries has not yet been decided: If the country draws massive amounts of resources from other countries and exports inflation in return, the criticism will not fall silent, it will just sound different.

With his traffic light alliance, Olaf Scholz wants to "play a pioneering role for Germany".

At the head of the largest economy on the continent, he must assert this claim for the entire EU.

It is still unclear how and whether he can do this.

Gabriel Felbermayr is President of the Austrian Institute for Economic Research (WIFO) in Vienna.