Germany: A Weakened Merkel

Published on September 25, 2017

While Angela Merkel easily won a return to a fourth term as Chancellor in Germany’s federal elections yesterday, she faces immensely difficult negotiations to form Germany’s first ever four-party coalition government that may take months to conclude.

*** We think the markets may be under appreciating how fragile and perhaps even unstable the political situation will be in Berlin. Both mainstream parties, the Christian Democrat/Christian Social Union and Social Democratic Party, were hollowed out losing support and barely winning 50% of the vote between them, while the hard-left die Linke and far-right Alternative for Deutschland picked up one in five votes. With the SPD vowing to go into opposition, Merkel will have to bridge enormous policy differences and rivalries to form a first ever four-party coalition with the Free Democrats and Greens. ***

*** In particular, Merkel’s biggest problem will be on her right with the CSU, whose support plunged in home state of Bavaria so much it is vulnerable to further losses in a Bavarian state election next year to the AfD. This will make a coalition agreement especially difficult with the Greens, who face their own internal resistance to going into a government with the CDU. In addition, the Green’s pro-Europe positions must be reconciled with the more skeptical stance of the newly re-emergent FDP, which will also be demanding the powerful finance ministry, currently held by Wolfgang Schaeuble, who is unlikely to relent save for an equally powerful cabinet position. ***

*** Failure to form a stable coalition government could push Merkel back to negotiating with the SPD for a return to a Grand Coalition, despite the SPD’s opposition vows. And while a tail risk, a protracted failure to form a government in the coming negotiations could even lead to Merkel’s ouster and calls for new elections. In the process, Germany’s role as Europe’s stable anchor could be undermined and, on balance, the concessions Merkel may need to offer to form a new coalition government are likely to work against further European integration in the near term. ***

 

Merkel, of course, can never be underestimated, as she has shown repeatedly throughout her political career a deft hand at navigating difficult political waters. But the challenges ahead are formidable, and her legacy could be largely defined by the outcome of the four-way negotiations in Berlin over the coming months.

Difficult Coalition Negotiations Ahead

According to infratest pollsters, the CDU/CSU won the most votes, but at 32.7%, their support plunged by more than 5%. The SPD barely managed to win 20%, for the worst showing in the party’s 132-year history while the CDU/CSU saw its worst vote tally since 1949.

The FDP under its charismatic leader Christian Linder marked a dramatic comeback on the national stage, surging to 10.5% after falling under the 5% bar in the last elections. Die Linke, the leftist breakaway from the SPD held ground at 8.9%, same for the Greens, slightly better at 9.4%. But it was the AfD who were the outside winners, pulling down 13.4% of the vote, making them the second largest party in opposition in the Bundestag.

There was a very high 77% turnout, quite a bit higher than in 2013 elections, which gives even more weight to the AfD results, since their performance would have been even higher on a lower turnout.

In hindsight, Merkel’s campaign strategy to co-opt much of SPD policy positions looks to have backfired. While it weakened the SPD, which in theory would have made them an even more compliant junior partner, and help Merkel counter the sway of her more conservative CDU wing and the CSU, it also made her look like such a sure winner it may have bled votes within the CDU and CSU to the AfD as a protest vote, or to the small parties voters wanted to see in a coalition, particularly the FDP.

Merkel and her chief of staff, Peter Altmaier, are bracing for tough coalition negotiations — the post-election talks lasted a month in 2009 and three months in 2013 — stressing Germany needs a strong and stable government and that are looking for “sensible, realistic” expectations by the other parties in their demands before joining a first ever four-party coalition government in Berlin. It will probably fall on deaf ears.

The CDU negotiators will want to keep the Grand Coalition option open, however dimmed, if for any other reason, to dampen the demands of the FDP and Greens. There is, however, almost no near term window for a Grand Coalition. Most of the SPD leadership feels the party failed to get across much of its policy agenda during the previous government and have concluded their social reform agenda cannot be achieved from inside a CDU-led government.

Only a crisis is likely to shift the SPD stance, but even then, the political price could be a date for new elections. And if the SPD sticks to its guns on staying in opposition, the Green and FDP demands will go up, as will the concessions Merkel must make in brokering between the various poles of her coalition.

For example on French President Emmanuel Macron’s initiatives on Europe, Merkel will have to find a way to bridge the distance between the European skeptics among the conservative wing of CDU and CSU, as well as the FDP, with the Greens, who are pressing for a closer alignment with France and the south of Europe on most issues relating to the euro and European integration. For her part, Merkel tends to lean towards the Green views on Europe, which is one reason she will strive to accommodate their demands.

The FDP adopted a much more cautious stance on Europe in this campaign, in large part to carve out a sharper identity in contrast to Merkel, even calling for Greece to leave the Euro before offering further concessions on the Greek debt. On the positive side, the FDP’s position on NATO and military spending is a positive, and could allow Merkel to plow ahead with the planned increase in resources the German military badly needs.

And under its charismatic young leader Christian Lindner will shun an offer of the foreign ministry to demand the far more powerful finance ministry, which now plays such a dominant role on Europe.
The CDU’s Wolfgang Schaeuble will not be inclined to let himself be shoved out of the way so easily. He might end up on another important position if he chooses to stay involved in domestic politics. But it will be very hard to keep the MOF if the FDP is dead-set on taking control of this crucial cabinet position.
Wolfgang Kretschmann, the popular Green prime minister of the economically powerful Baden Wuertemberg, is likely to be asked to take a leading position in the coalition government, probably the foreign ministry. The Greens are also sure to get the Environment Ministry and at least one other seat.

Other prominent Green leaders in line for possible cabinet positions include Cem Oezdemir, a Swabian of Turkish descent who was among the “young Turks” who started an outreach to the CDU as far back as 1994, and Katrin Goering-Eckart, who led the party’s Faction in the Bundestag the last four years.

Both are “Realos,” so the Green left has little confidence in them. This will make it hard for the Green leadership to cede too much on their European policy, the environment or domestic economic policy.

Bavaria and the AfD Factor

Much will be written about the AfD surge to win more than 13% of the vote. To some extent, the AfD benefited from CDU and CSU voters assuming a Merkel win as the AfD drew about one million votes from people who voted for Merkel in 2013. But they also garnered another 1.2 million or so in votes from first time voters.

They will be represented in the Bundestag for the first time, and will get committee seating and some chairs. Indeed, one of the internal arguments within the SPD for refusing a Grand Coalition is that by going into opposition, it will ensure the most important committee positions, which traditionally go to the biggest opposition party, will be denied to the AfD.

But the biggest impact of the AfD success will not be in the Bundestag but in the political pressures they are creating in Bavaria, where they gained considerable position against the CSU, whose support plunged to under 40% in Bavaria. It was the CSU’s worst performance ever in its bastion home state, which portends badly for the party in the Bavarian state election next year — unless CSU leader Horst Seehofer can quickly reposition the party to highlight its conservative principles that are far to the right of Merkel’s own views. Seehofer is now in a much-weakened position and is likely to prove Merkel’s biggest problem in the coalition negotiations.

The CSU is likely to take a “far-right” stance on most of the key coalition issues and, in general, flexing its conservative muscle to ensure a very conservative “center right” coalition agreement. That means keeping the Greens from securing major cabinet positions, and Seehofer is already back to demanding a refugee ceiling of 200,000, which is a no-go for the Greens. This will make it very difficult for both Merkel and the Green leadership.

if Merkel snubs Seehofer, which seems likely, it could further undermine Seehofer, leading to his ouster as CSU leader, probably in favor of Bavarian finance minister Markus Soeder.  Worse, Seehofer’s mishandling of the election campaign — many in Bavaria were just as angry over the way he treated Merkel on the migrant issue as those who were critical of Merkel — or a failure in the coalition negotiations could lead to a further erosion of the CSU in Bavaria.

That, in turn, could lead to the CSU even losing the Bavarian state election due in the fall of 2018 to the AfD, which would give the far-right an even more powerful political base than their seats in the Bundestag.

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