Germany: Grand Coalition Talks Loom but Outcome Uncertain

Published on September 23, 2013

Chancellor Angela Merkel won a resounding personal victory today in becoming only the third post-war German chancellor to win a third term and in leading her Christian Democrats and Christian Social Union to the best ever results since 1990.

But the CDU/CSU came just short of an absolute majority, meaning Merkel must negotiate a coalition government with the Social Democrats, who despite their drubbing saw their leverage bolstered by the stunning collapse of the Free Democrats who were ousted from the Bundestag.

Worse, for a market longing for certainty in an uncertain Europe, it may take six to eight weeks before a new government can be formed in Berlin.

As of midnight Sunday, the election projections put the CDU/CSU at 41.5%, while the SPD stumbled badly, barely winning 25.7%. The biggest surprise was the reversal of fortunes we warned was possible (SGH 9/20/13, “German Elections – One Last Snapshot”) in the rise of the new anti-Euro Alternative for Deutschland to just come short of Bundestag representation with a 4.7% showing and the dramatic fall of the Free Democrats to only 4.8% and being ousted from the Bundestag. The Greens also suffered, falling to 8.4%, while the Left Party, die Linke, edged just above the Greens with 8.6%.

*** Chancellor Merkel will meet with her CDU/CSU party leadership Monday morning to map out their strategy in the upcoming coalition negotiations. As we wrote (see SGH 9/17/13, “German Elections: Grand Coalition Increasingly Likely”), Merkel had wanted a Grand Coalition in order to provide a more broadly-based super majority in the Bundestag and a more supportive SPD-controlled Bundesrat. But she lost considerable leverage with the loss of the FDP, and her conservative wing and the CSU, bolstered by the strong showing by the AfD, will be limiting how far she can go to accommodate SPD demands. ***

*** Indeed, even though the SPD is reeling from its second consecutive battering in federal elections, it is for now adopting a fairly defiant stance before the coalition talks get underway. The SPD must meet its promises to its union base, such as a minimum wage and more social spending at home. But it will also be hobbled by internal divisions and delayed by its need to first hold a party Congress in the next week or so before it can rally around its coalition demands. And if the SPD overplays its hands, Merkel may opt for an unlikely coalition with the Greens, who are also undergoing internal battles over the direction of the party after its own poor showing. ***

CDU-SPD Negotiations

The CDU/CSU won a solid 41.5% of the popular vote, its best ever performance since 1990 when Helmut Kohl win his third term amid German reunification. And by every account, the victory is credited to Merkel’s enormous popularity — even two-thirds of the SPD voters said in exit polls they thought she was doing a good job, and was more trusted with the economy. Merkel also succeeded in winning over the bulk of the so-called “Merkel Democrats” the SPD was desperately trying to keep in the party ranks.

In the new Bundestag, the CDU/CSU will hold 311 seats, just short of an absolute majority that was initially reported. The SPD will hold 192 seats, die Linke 64, and the Greens 63 for a total 319 seats. The size of the Bundestag was increased from 598 seats to 330 due to the new way the second “party vote” is likely to be tallied — Germans vote twice, one for their constituency and one for party preference.

Merkel as we noted badly wanted a Grand Coalition going into the Sunday elections, but ideally, she would have held maximum leverage to negotiate the terms for such a Grand Coalition if the FDP had managed to clear the 5% threshold to stay in the Bundestag as it was expected to do and thus offer Merkel an alternative to the SPD if needed.

Despite Merkel’s enormous personal popularity, most of the CDU party leadership, and certainly the CSU will be keen to keep Merkel from drifting too far to the center or center-left, and will use the strong showing of the AfD to keep her from moving too aggressively on less austere or demanding European policies.

But perhaps the biggest obstacle to Merkel’s Grand Coalition ambitions will be the SPD’s even deeper internal divisions. That the SPD barely did better than the drubbing they took in 2009 after agreeing to a junior coalition status to Merkel’s CDU in 2005 is not lost on many SPD veterans. Steinbrueck, for his two cents, is already making the case the SPD can take a hard line in the coalition negotiations

At minimum, the SPD will need to keep the Unions on board and kept them from migrating to the far left die Linke party. A few of the major German unions are opposed to siding with the Left such as the Chemical Workers Union, while some of the larger unions such as the Metal Workers and the Public Services Union are leaning to the Left.

Merkel will be aware of the SPD’s need to keep the unions within the party and will share the desire to keep the major unions from drifting to the far left. But even as she reaches out to the SPD’s conservatives, Merkel may be unable to go much beyond supporting the unions and companies negotiating for minimum wages at the regional rather than federal level to protect German competitiveness.

A less austerity-driven European policy will also rank high among the SPD demands. Again, Merkel will hold some sympathy to the argument if well thought out, but she will also have to an eye on public opinion and keep in mind the near 5% of the German voters who rallied behind the AfD in opposition to the Euro.

The AfD, FDP, and Greens

For the other political parties, only the AfD did better than expected. Although the AfD just missed clearing the 5% threshold to win representation in the Bundestag, it still turned in a politically potent performance considering the single issue party was only formed a year ago by a handful of mostly economic professors unhappy with the developments in the European Union. Its late surge looks to have come at the expense of some left votes and especially the FDP.

But after what is likely to be an initial flood of publicity, its biggest impact in German politics is likely to be twofold: first, as we noted, even though the conservatives in the CDU and CSU will point to their rise as reason to rein in Merkel’s centrist leanings, the looming noisy entrance of the AfD into the Bundestag will lend even greater popular and political momentum to Merkel’s efforts to form a Grand Coalition.

Second, it will deepen the internal splits that have been left the FDP unable to define itself clearly ever since it replaced the SPD as Merkel’s junior coalition partner in 2009. Both its party leader Philipp Roesler and top candidate Rainer Bruederle are stepping down in the wake of the party’s drubbing in seeing a 10% collapse to 4.8% from the 14% plus they achieved in 2009. Without a Bundestag fraktion, which is the traditional party power base, the FDP will have to regroup and rebuild from its representation in five state governments, the most important being North Rhine Westphalia. Its party leader there, Christian Lindner is likely to head up the party.

Lindner, however, will face fierce opposition from Frank Schaeffler, a prominent critic of the FDP’s Euro policy under Roesler’s fumbled leadership. Schaeffler and his Euro rebel allies will point out, with some justification, that the votes they lost to the AfD were the difference costing the FDP the Bundestag. They may thus pull the FDP to a more Euro-sceptic course than Lindner would like.

Meanwhile the Greens, who were polling as high as 14% earlier this summer before collapsing to barely 8% today, will have its own internal battles to fight. The party’s more conservative economic wing, the so-called “Realos” may have their moment in pressing for a coalition with Merkel. Co-leader Juergen Trittin, who draw his support from the party’s left, or “fundos” is nevertheless probably the most tactically adept of the Green leadership, and he went out of his way in offering some very moderate remarks in an overture to Merkel earlier tonight.

A Black-Green coalition government would be a first, and some of the Green’s more obvious demands in the upcoming negotiations with the CDU, such as the commitment to nuclear free energy policy, have already been embraced by Merkel in her steady shift to the center.

But such a Black-Green coalition still seems unlikely, since the Green’s rank and file base remains far to the left of some of its leadership and are unlikely to give the leadership much room to move as far to the center much less the right to satisfy Merkel’s own conservative faction.

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