Germany: The Grand Coalition Negotiations

Published on September 26, 2013

Difficulties in the initial talks between the victorious Angela Merkel and her Christian Democrats to form a Grand Coalition government with the humbled but defiant Social Democrats are underscoring how long it may take to form a new government.

A Grand Coalition is still the most likely outcome of the negotiations in Berlin, and senior CDU officials indicate that they remain confident of a workable deal with the SPD. But it may take up to two months or more to negotiate the policy terms and cabinet positions, especially if there is an SPD membership ballot.

Indeed, the single biggest cause in a delay to a new government being formed looks to be the internal splits within the SPD, much of which may spill into the open when the SPD holds its extraordinary party conference starting tomorrow.

*** Recent comments from Finance Minister Wolfgang Schaeuble hinting that a new, less radical Green party could be a viable alternative, now that its former leader Jürgen Trittin has stepped down,  should be seen as more directed at keeping the SPD honest than any real expectation of talks with the Greens, especially given the conservative Bavarian CSU’s hostility to them. ***

*** Despite harsh public comments from the national leaders of the SPD questioning the desirability of another coalition with the CDU — among them, equating Merkel to the “Black Spider” of coalition partners — the SPD’s Sigmar Gabriel, Peer Steinbrueck, and Frank-Walter Steinmeier were far more amenable to entering quickly into coalition discussions with the CDU at a meeting on Tuesday than indicated by their public grandstanding. ***

*** But the grip on the party’s position going into the coalition negotiations with the CDU is tenuous at best, with the real power within the party shifting rapidly in the wake of yet another national election defeat to the lander, or state, and municipal levels, led by Hannelore Kraft, Prime Minister of North Rhine Westphalia, and Hamburg Mayor Olaf Scholz taking the lead in pushing for a harder line with the CDU and the need to draw a greater political distinction with their party. ***

The SPD Divisions

Kraft is immensely popular in NRW, which has long been a bastion of the SPD strength, and many believe is the SPD’s most likely Chancellor candidate in 2016. She may also end up succeeding Gabriel as party chairman. Scholz draws his support from the more conservative SPD faction who came up under former Chancellor Gerhard Schroeder. Both are sensitive to the need to rebuild and maintain the SPD’s support with the unions and to keep the unions from migrating their support, and dues, to the far left die Linke Party.

She and other local leaders have been the most vocal in pushing for a vote to the 427,000 members before proceeding with coalition discussions, which will be brought up at this Friday’s party conference. Hidden behind the electoral politics is also a fight over re-distribution of income and VAT tax revenues between the Federal and Lander (and between East and West) that is looming in the new coalition government.

Of the three current senior SPD leaders, only Steinmeier is seen serving in any Grand Coalition government, serving to some extent as a “transitional anchor” most likely serving within a Grand Coalition as Vice Chancellor.  While Steinbrueck’s future looks to be limited after running such an inept campaign, it is Gabriel who will be fighting to survive and retain his party standing.

Gabriel is keen not to serve in a Grand Coalition government, betting that staying outside and either holding on to his party chairmanship and serving as the party’s Bundestag fraktion leadership would serve his longer term interests better in putting himself forward as a potential rival to Kraft as the party’s future chancellor candidate.

But Thomas Opperman, the SPD’s current Bundestag whip, is also said to be vying for the Fraktion leadership position, and he commands considerable support among SPD Bundestag deputies.

Cabinet Positions

CDU officials fully expect the SPD to follow up with a demand for the Finance Ministry position, which they are very keen to keep in Schaeuble’s hands. If this powerful position does indeed end up being traded away in coalition discussions, CDU officials suggest that Steinmeier is the more preferred, more malleable choice than former deputy Finance Minister and current ECB Board Member Joerg Asmussen.

While Asmussen is better qualified and in fact closer to the CDU on economic issues, his youth and ambition is seen as more of a threat by the CDU than the staid Steinmeier. Another proposal over who will fill the Finance position would be to shift its European portfolio to an enlarged Economics Ministry, which woud then be headed by Schaeuble.

If the SPD is unable to wrestle control of the Finance Ministry, Steinmeier as a Vice Chancellor would probably be given the Foreign Ministry.

In addition, the SPD badly wants control of the Labour and Social Affairs Ministry, a key ministry to the SPD and its union base. Its current minister, the CDU’s Ursula von der Leyen, is credited with much of the CDU’s success in recent years in “stealing” in many core wage and equality issues from the SPD. And von der Leyen, seen as a rising star in the CDU, would in turn have to be compensated with a senior position in the Grand Coalition government.

Instead, the Labour Ministry may go to one of the SPD’s more high profile left wing deputies, such as Shadow Labour Minister Klaus Wiesehügel, or maybe even Gabriel, if he has to go into the cabinet.

European Policy Issues

In the wake of the larger internal SPD and cabinet positions, the policy difference between the two main parties seem almost minor in comparison.

On Europe, the SPD will almost certainly half-heartedly demand a promise of Eurobonds, but only because they have to, and with no expectation really of any real movement on this electoral platform that has turned out to be quite unpopular with the domestic electorate.

More interestingly, they may also then bring up a softer form of European debt mutualization again, including perhaps a revival of the European Redemption Fund ideas floated in the past. But these too are likely be shot down.

And despite the anti-Euro Alternative for Deutschland’s strong showing in the elections, some CDU officials in fact express a greater openness to some further loosening of the German purse strings, at least on the banking front – perhaps after the May 15 2014 European parliamentary elections, for which the AfD will be vigorously campaigning with the help of public money now from the government after having won a certain number of seats.

Politically, in the long run, despite losing some conservative seats to the right, the CDU took a good chunk of the “Merkel Democrat” votes, including an unusually large number of women and very young voters, and may want to cement these inroads into the center and center left.

Domestic Policy Issues

The CDU’s success in winning over such a large number of the Merkel Democrats is one reason why the SPD will fight harder on domestic policy issues than at the European level where they have struggled to distinguish their policies from Merkel’s.

Negotiations over domestic policies will be much more public and immediate, led by differences on taxation policy. Merkel has pledged not to hike taxes, and in fact to provide some relief to the population from tax bulge creep, but may be willing to achieve those goals through a more progressive tax code at the expense of the upper tiers.

The debate over minimum wages is not expected be a deal breaker of any sort, and Merkel has already ceded some ground to limited wage floors in certain regions and industries. There will be some dispute over spending, but this is more on priorities and the allocation of money than on any significant difference on spending levels and budgets.

The SPD will push for a greater degree of spending on social benefits, health and education, while CDU official are focused on including rather substantial investments in infrastructure – trains, roads and so on. On other domestic issues, as one official put it, the CDU has already moved towards the SPD on nuclear energy, while the SPD has moved towards the CDU on immigration.

And in a bit of political theater, the SPD may also demand that Merkel apologize for questioning their motives on the campaign trail. She is expected to refuse to do so at first, but then to concede, with full knowledge that the whole episode will only serve to highlight the difference between her tremendous credibility and popularity and the SPD, which is likely to be painted in a rather weak, sore loser light.

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