Germany: Beyond Sunday’s Vote

Published on January 19, 2018

This Sunday some 600 delegates from Germany’s Social Democratic party will gather in Bonn to vote on whether its leadership should proceed with “formal” coalition talks with Chancellor Angela Merkel and her Christian Democrats and Christian Social Union sister party.

A few quick points to frame the Sunday vote and what to expect in its wake:

** The delegates from the SPD’s 16 state organizations are likely to approve further talks to form a Grand Coalition. Resistance to the leadership’s 28-page agreement hashed out with the CDU/CSU is primarily coming from the party’s unusually powerful “youth” wing led by an ambitious 28-year-old, Kevin Kühnert.

** But while Saxony-Anhalt, Thuringia, and Berlin laid markers down against the talks, their 36 delegate count is dwarfed by larger delegate blocs from SPD stronghold states like North Rhine Westphalia and the trade unions.

** The yes vote to proceed with the coalition talks, however, is likely to come with “compromise” demands on core SPD issues the trade unions are seeking. These will be fiercely resisted by the conservative wing of the CDU and especially by the CSU.

** It may be enough to break the talks, especially as there are factions within both the CDU and CSU seeking the alternative of a minority government. What’s more, whatever the formal talks produce must still be approved in mail-in vote by the entire 400,000-plus members of the SPD.

** Indeed, whatever the outcome of the Sunday vote, the odds of Merkel returning as Chancellor dim with each passing day, and it would be a fragile Grand Coalition in any case that could easily fall later this year, if not within months, over the first big contentious policy issue.

** A minority government led by the CDU/CSU, perhaps with the Free Democrats, and probably under CDU former finance minister Wolfgang Schaeuble, is the most likely first recourse before there would be snap elections, but it too would be a weakened alternative government.

** So while the German public and more broadly, the rest of Europe, would prefer Chancellor Merkel’s return to power in a fourth term leading the new government in Berlin, our sense of considerable internal party political dynamics within each of the main parties, the CSU, the SPD, the FDP and the CDU as well, that are all driving against Merkel’s return.

** We would thus repeat our concerns from earlier reports (see SGH 11/16/17, “Germany: Merkel’s Last Play”) that while Chancellor Merkel has pulled off remarkable political turnarounds over the years, the market is nevertheless significantly under-appreciating the political risk in how fragile the German government may prove to be through this year.

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