Germany’s likely three-party coalition has entered negotiations on the formation of the next government following a preliminary deal that named digitalisation as top priority.
Europe’s largest economy held national elections on 26 September that saw Angela Merkel’s Christian Democrats (CDU) suffer their worst result ever, losing – albeit narrowly – to the centre-left Social Democrats (SPD). After 16 years in office, Merkel will soon step off the political stage and her party will go into opposition.
The SPD, environmentalist Greens and pro-business Free Democrats (FDP) published a paper with the results of their ‘exploratory discussions’ (‘Sondierungsgespräche’) on 15 October heavily focusing on digital topics. Topping the list of challenges even before the issue of climate change is a chapter titled ‘Modern State and Digital Dawn’ (‘moderner Staat und digitaler Aufbruch’).
The parties specifically set a goal of halving the duration of administrative, planning and approval procedures in their first year in government. Every ‘necessary decision is to be made and enforced’ in order to be able to implement private and public investments ‘quickly, efficiently, and purposefully’.
Additionally, administration is to become ‘more agile and digital’, the paper continues. Digital solutions are to be ‘considered and implemented in each case’. In order to do this, the parties propose to subject laws to a so-called ‘digitalisation check’. Without going into any specifics, the parties further state they want to relaunch the federal government’s digital policy strategy (including an artificial intelligence, data and blockchain strategy) and reorganise and bundle government competencies.
22 working groups
The parties are now using the paper as a basis for the formal coalition negotiations. Since last week (27 October), 22 working groups have been debating details of a possible coalition agreement. The groups are made up of three to six politicians from each party with expertise on subjects ranging from ‘digital innovations and infrastructure’ or ‘modern state and democracy’ to ‘cultural and media policy’ or ‘climate, energy, transformation’.
The working group consultations are due to be completed by 10 November. An 18-member main negotiating group will then deal with the resulting papers and formulate the coalition agreement. The parties hope to have the next chancellor in place by early December. This would be the SPD’s Olaf Scholz, vice chancellor and finance minister of the outgoing government.
In the meantime, Merkel is leading a caretaker government until her successor is sworn in. On 26 October, Merkel received her formal dismissal certificate from president Frank-Walter Steinmeier.
During her fourth and final term, Merkel’s grand coalition agreement (signed on 12 March 2018: DE; EN-language summary provided by Konrad Adenauer Foundation) specifically stated an intent to strengthen Germany’s role as a leading fintech location. In contrast, the term ‘fintech’ is nowhere to be found in the three parties’ paper from this October. However, start-ups in general are mentioned in the context of reducing bureaucracy in innovation funding and financing.
Taking stock of five years
Germany’s Fintech Council (‘FinTechRat’), established in 2017 by the Bundesfinanzministerium (Ministry of Finance) and made up of 29 individuals drawn from the private sector who provide advice to the ministry, took stock of the past legislative period and the country as a fintech location during its most recent meeting on 29 September. Concluding nearly five years of work, the council’s experts published a short paper (DE language) titled ‘Outlook FinTech Deutschland’.
While Germany is still a leading location in terms of start-ups and financing volumes, ‘digitalisation remains an implementation problem’ in the country, even for fintechs, the Council states. ‘For example, the regulatory framework continues to focus on traditional processes and structures at its core, while de facto service provision is increasingly taking place in fragmented value chains and in the ecosystem,’ the authors write.
The Council goes on to criticise that the ‘requirements of a modern financial ecosystem with fragmented value chains and the demand for scalable, completely digital processes, including the use of digital identities, have not yet been adequately reflected in the regulatory framework’. The ministry had not addressed key challenges such as the ‘necessary dismantling of barriers for cross-border activities’ nor ‘the establishment of mandatory standards for scalable service provision in an ecosystem’.
But the authors do praise the ministry for achievements such as the promotion of technological expertise in management of regulated financial service providers, the establishment of a regulatory framework for crypto deposits and ‘in the European regulatory context, initiatives for a clearer framework of conditions for the use of cloud services’.
Future fintech agenda
Looking ahead, the Fintech Council recommends the Ministry of Finance sharpens the focus of any future versions of the council by defining a ‘fintech agenda’ at the beginning of the legislative period that would name specific priority topics on which it would seek the council’s advice. Besides ‘national and European infrastructure topics relevant in a fintech context’, the authors suggest such topics could be derived from the federal government’s blockchain strategy or proposals for a programmable digital euro.
The paper concludes by makes a couple of further recommendations such as allocating dedicated resources or a budget within the ministry to the council ‘in order to permanently ensure the Fintech Council’s neutrality and ability to act’. The council also states that it would be helpful to establish ‘a permanent and neutral data collection regarding status and development of fintech in Germany, e.g. by the Bundesbank’, arguing the central bank could presumably already provide a comprehensive overview on the basis of available data.
A different recommendation that has been brought up repeatedly over recent years is that of a digital ministry. In the outgoing government, Dorothee Bär (CSU) was responsible for digital policy as a state minister in the chancellery. Yet she was regularly criticised for hardly having any staff or even much of a budget. The FDP has always been in favour of establishing an actual ministry, the Greens are against it and the SPD has remained somewhat split on the issue.
Industry representatives have now criticised the paper from the three parties for not even mentioning the topic. And yet a digital ministry would be ‘needed to co-ordinate and accelerate federal digital policy activities and would be exactly the right body to implement the announced digitisation check for laws’, Achim Berg, president of digital industry association Bitkom said in a press statement. Oliver Süme, chairman of internet industry association Eco, pointed out in a statement that a ministry for digitalisation ‘remains the way forward for the internet industry’ to bring together complex issues such as digitalisation and climate protection.
‘Germany’s public sector and fintech: game on?’ – our feature (18 May 2021) on how Germany’s public administration is investing in fintech solutions
‘German banks set out vision for digital euro design’ – our news story (7 July 2021) on the German Banking Industry Committee’s detailed thoughts on the design of a digital euro
‘German authorities champion blockchain-based securities settlement’ – our news story (30 March 2021) on German financial authorities successfully testing the use of distributed-ledger technology (DLT) to settle electronic securities in a trial involving six major international banks