Rethinking Europe

Governing Germany: More of the Same?

Germany’s current political contortions will likely end with a fourth term for Merkel.

Credit: Petra B. Fritz www.flickr.com

Takeaways


  • After the pressure which German president Steinmeier exerted on the centre-left SPD last week, the threat of new elections has receded somewhat.
  • A renewed “grand” coalition between chancellor Merkel’s CDU/CSU and the SPD now seems the most likely outcome of Germany’s political turmoil.
  • A risk of repeat elections in Germany remains. It may take months before the political limbo is finally over.
  • Berlin finds itself in an unprecedented political situation. The outlook is not yet settled enough for firm conclusions.

A renewed “grand” coalition between chancellor Merkel’s CDU/CSU and the SPD now seems to be the most likely outcome of Germany’s political turmoil.

After the heavy pressure which German president Steinmeier exerted on the centre-left SPD last week, and amid some soul-searching within the SPD, the threat of new elections next spring has receded somewhat.

The big tanker ship SPD is not well suited for immediate U-turns. It can thus take a while for the SPD to complete the move from the immediate “no” to a new coalition with Merkel last Monday to detailed talks about renewing the CDU/CSU-SPD alliance for another four years.

Major stepping stones towards coalition talks could be the joint discussion to which president Steinmeier has invited the leaders of the CDU, CSU and SPD for this Thursday and the SPD party congress on 7 December.

Of course, a grand coalition is no foregone conclusion at all. For example, the SPD is also considering to offer no more than occasional support for a Merkel-led minority government.

Risk of repeat elections

A serious risk of repeat elections remains, for instance if a potential agreement between the CDU/CSU and the SPD were to be voted down by SPD members who seem to be torn between a desire to sharpen their party’s brand in opposition and to shape policies while they can.

In any case, it may take months before the political limbo is finally over.

Major parts of the SPD believe – probably rightly so – that a renewed co-operation with a weakened Merkel would give them the opportunity to implement even more of their own policy agenda than before.

Four years ago, the SPD pushed through a minimum wage and an early retirement scheme for some workers at the age of 63 as a price for entering the government.

What a CDU/CSU-SPD alliance would mean

Relative to a Merkel-led Jamaica coalition with the Greens and the FDP, the option that fell flat a week ago as the FDP pulled out at the last moment, a renewed CDU/CSU-SPD alliance would probably mean:

• less emphasis on income tax cuts

• a modest further increase in government spending, including more generous pension entitlements for some workers

• a further partial rollback of labour market reforms, for instance by tightening rules for temp agency employment

• a slower phasing out of coal power stations

• somewhat stronger support for some of French president Macron’s European reform initiatives

Veto power in the Bundesrat

Regardless of the precise shape of the government Merkel may eventually lead into her fourth and probably final term, most key policy initiatives will have to be agreed in the end between the CDU/CSU, SPD and the Greens as all three parties can wield a de facto veto in the upper house of parliament, the Bundesrat.

In this sense, the major result of the FDP’s decision to walk out of coalition talks a week ago is that the FDP will once again have no impact on policies for the time being. The FDP is not represented in enough state governments to have a veto in the Bundesrat.

The FDP decision to avoid the messy compromises of a coalition with Merkel and the Greens may or may not be good for the future electoral prospects for the party itself. But it means that Germany will pursue economic and social policies that are further away from those for which the FDP had fought its election campaign.

Berlin finds itself in an unprecedented political situation. The outlook is not yet settled enough for firm conclusions.

Looking much further ahead, the current contortions on the way towards a likely fourth term for Merkel do suggest that, if a new government lasts a full four-year term, both the CDU/CSU and the SPD will be led by a new generation of leaders at the next regular vote in 2021.

As in Austria, a long period of a “grand coalition” between a country’s two major parties can give way to a period of surprises.

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About Holger Schmieding

Holger Schmieding is chief economist at Berenberg Bank in London. [United Kingdom] Follow him @Berenberg_Econ

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