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The German consensus machine

Don’t look for major policy changes in Germany after the September 24 federal elections

By: EBR - Posted: Tuesday, September 05, 2017

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The debate also has not altered the SPD’s fundamental problem: the party’s focus on issues of social justice does not resonate well with the vast majority of Germans who think that Germany is doing quite well. And the about 25% of Germans who are dissatisfied with the way things are tend to opt for the ultra-right (AfD) or the ultra-left (Die Linke), rather than for the center-left SPD which has been Merkel’s junior partner in government for two of her three terms so far. The SPD simply lacks a message that could attract enough voters to oust Merkel.
The debate also has not altered the SPD’s fundamental problem: the party’s focus on issues of social justice does not resonate well with the vast majority of Germans who think that Germany is doing quite well. And the about 25% of Germans who are dissatisfied with the way things are tend to opt for the ultra-right (AfD) or the ultra-left (Die Linke), rather than for the center-left SPD which has been Merkel’s junior partner in government for two of her three terms so far. The SPD simply lacks a message that could attract enough voters to oust Merkel.

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by Holger Schmieding*

Sunday evening’s only TV debate between German Chancellor Angela Merkel (CDU) and her center-left challenger Martin Schulz (SPD) has not changed the outlook. Merkel is far ahead in the polls and slated to get her fourth term.

The TV debate revealed once again that, on most issues of substance, the two contenders to lead Germany – both centrists and staunchly pro-European candidates – are not far apart. They bickered a lot, but mostly about details rather than the broader outlines of policies regarding migration, Turkey, Trump, the car industry etc.

Both suggested that Germany will take a tougher line on Turkey, with Schulz calling for an immediate stop of EU accession talks with Turkey and Merkel edging towards that position.

Germans know from experience with previous pre-election debates that Merkel is not by any means a natural performer on TV – and vote for her nonetheless.

The debate also has not altered the SPD’s fundamental problem: the party’s focus on issues of social justice does not resonate well with the vast majority of Germans who think that Germany is doing quite well.

And the about 25% of Germans who are dissatisfied with the way things are tend to opt for the ultra-right (AfD) or the ultra-left (Die Linke), rather than for the center-left SPD which has been Merkel’s junior partner in government for two of her three terms so far. The SPD simply lacks a message that could attract enough voters to oust Merkel.

Coalition options after the election

The two hypothetical alternatives to a Merkel-led government in Germany are an SPD-Green alliance with either the Left Party or the FDP. However, these political forces would altogether command just below 40% of the vote.

And even if there were to be a major turnaround in the polls, chances are that Schulz would still not become chancellor, as the FDP may refuse to join him – while parts of the SPD may shy away from teaming up with the radical Left Party at the federal level.

For Schulz to close the 14-point gap between his SPD and Merkel’s CDU/CSU and thus lead a potential SPD-CDU/CSU coalition would be even far more difficult.

In the order of likelihood, the most realistic options for a new Merkel-led German government are:

1. a “Jamaica” coalition between Merkel’s “black” CDU/CSU, the “yellow” FDP and the Greens, named after the colors of the flag of Jamaica,

2. a CDU/CSU-FDP coalition,

3. a renewed “grand” coalition between CDU/CSU and the centre-left SPD and

4. a CDU/CSU-Green alliance without the FDP.

Would it make a difference?

Would the emergence of any one of those coalition options make much of a difference? Policies would not change dramatically in any of these scenarios.

Egged on by her center-left coalition partner SPD, Merkel has presided over a few reform reversals in her third term, introducing a minimum wage, restraining the scope for temporary work contracts slightly and making some pension entitlements more generous.

If Merkel forms a new coalition with either the SPD or the Greens, expect more of the same, namely a few small steps backwards that will place additional burdens on the German economy over the years without restraining the current upswing significantly.

If Merkel teams up with the FDP instead, expect some small-scale structural reforms, including a modest income tax reform.

However, as parts of the FDP may be less comfortable with the European agenda of French president Emmanuel Macron, discussions about common funds for the Eurozone or other European reforms may initially be a little more rocky until the FDP has settled into the role as party of government (a pivotal change from its current status as extra-parliamentary opposition).

Forming a government

Forming a new government in Berlin might take a while after the elections are held on September 24.

For starters, the Greens, the FDP and possibly the SPD might be reluctant to make the compromises needed to join Merkel in a coalition ahead of early state elections in Lower Saxony on October 15, 2017.

That is why the decisive stage of coalition talks in Berlin may only start in mid-October – even though the pressure on all parties to clarify the outlook for the national level as soon as possible will be huge.

The German consensus machine

For two reasons, we should not look for major policy changes after the election:

1. The four mainstream parties (CDU/CSU, SPD, Greens, FDP) largely agree on the overall direction of German foreign and European policies.

As things are going well enough at home, the desire to make major changes in domestic policies is not very pronounced either.

2. Because of the special role of Germany’s upper house of parliament, the mainstream parties usually need to find a consensus anyway.

As the chamber of the 16 federal states, the Bundesrat will not be elected anew in September. The Bundesrat needs to pass most major laws including most laws that affect spending and taxes and major European commitments.

The CDU/CSU, SPD and Greens are represented in so many state governments at the moment (9, 11 and 10, respectively) that either of these three parties could veto any relevant law in the Bundesrat that does not pass muster with them politically.

This would not change even if the early state election in Lower Saxony were to bring down the current SPD-Green government in favor of a potential CDU-FDP coalition in that state.

The power of the Bundesrat forces the mainstream parties to strive for a consensus on many issues.

*  chief economist at Berenberg Bank in London

**first published in theglobalist.com

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