Germany: Awaiting a Grand Coalition

The German general election held last Sunday was one of the most uninspiring elections that one can remember. Its result, however, is highly significant.
 
To begin with, German Chancellor Angela Merkel's Christian Democrats regained first place, having increased their percentage of the votes. The Social Democrats (SPD) also performed well, similarly increasing their number of votes, but appears to be stuck at 25 percent.
 
The most interesting and possibly the most important development concerned the fate of the Free Democrats (FDP). They were unable to clear the 5 percent national barrier to enter the federal parliament, having lost two of the three votes they received in the previous general election. The FDP received the highest percentage of votes in 2009 and the lowest ever last week. It is the first time since the establishment of the federal republic that it will not be represented in parliament. This means that the new parliament will be composed of only four political parties. The third largest party is the Left Party, which is composed of what was formerly the East German Socialist Unity Party and West German far-left parties. The smallest political and representation in parliament is reserved for the Greens. 
 
Despite the fact that Merkel won more than four out of 10 votes in the election, her party has fallen just short of being able to form a single party administration. As is usual in German politics, a coalition government has become necessary. There are various possibilities and scenarios that have been put forward. The most likely scenario is one whereby the Christian Democrats convince the Social Democrats to come together to create a grand coalition. This was exactly what was agreed to in 2005 and maintained until the elections of 2009. 
 
While in government even as a junior partner, the Social Democrats were able to curb some of Merkel's policies and push some of their own commitments, but paid a very heavy price in the 2009 elections. The electorate punished them for their time in government while rewarding the larger party. This experience governing with the Christian Democrats has not been lost on the SPD leadership. However, given the fact that collaboration has been seen both in the distant and recent past, it is more than likely that it will be repeated in the coming weeks.
 
Another alternative open to Angela Merkel is to ally with smaller parties to create a government. Of the two options, the Left Party is a non-starter due to the fact that the Christian Democrats have already ruled out working with that party on principle due to its past affiliation with the East German regime. That leaves only the Green party with whom to set up a coalition, which would be very difficult given the wide-ranging policy differences between the two parties. The only other theoretical option remaining is for the Social Democrats to come together with the Greens and the Left Party to form a coalition. While the numbers make this a possibility, political realities make this an impractical option. The Social Democrats, like the Christian Democrats, have expressed their objection to entering into any political alliance with the Left Party.
 
Another very interesting development that the election results highlighted is the growing support the Alternative for Germany Party received. Although it fell below the 5 percent threshold with 4.7 percent of the vote, the fact it had only recently been established and was able to take almost as many votes as the Free Democrats took political observers by surprise. The party campaigned on their singular anti-European theme of promising to take Germany outside of the euro currency. This is indicative of the backlash in German society to the ongoing effects of the 2008 financial crisis as well as the widespread view that Germany is expected to provide most of the financial support to help the whole of the Eurozone. 
 
Delicate deliberation
 
The prospective “grand coalition” will probably take place, but it will be later rather than sooner. The underlying reason being major policy differences. One issue that crosses both domestic and foreign policy categories concerns the attitudes and policy responses to the economic challenges facing the Eurozone. Chancellor Merkel is well-known for her support of austerity measures to meet the economic challenges faced in particular by the southern member states of the EU. Tight budgetary discipline, cutting back on spending and allowing taxes to remain unchanged have all been hallmarks of her economic stance. The Social Democrats are very much in favor of an economic stimulus package, similar to what President Francois Hollande of France desires. This will be a thorn in the side of negotiators.
 
As for new taxes and increased tax rates, the two parties oppose one another. They disagree on banking as well, with the Christian Democrats being satisfied with the present system while the SPD advocates the separation of commercial banks from investment banks. While both parties believe that domestic stimulus is required, they cannot agree on how much. Merkel thinks 25 billion euros by 2017 is sufficient, whereas the SPD promises 80 billion euros. A mutually agreeable number will have to be arrived at in order to set up the grand coalition. Digesting all these discussions and debates will certainly take up considerable time.
 
When the new government is formed, it will face several difficult challenges. In terms of the Middle East, although the Syrian question seems to have been settled peacefully with regard to the chemical weapons being turned over to the international community and destroyed within a year, it remains to be seen if this will actually be realized. There is still a possibility that the United States may object to the progress concerning chemical weapons and push for a military strike. While the British government did express support for such a measure, the British parliament rejected it, which left France as the major supporter of a military strike on Syria standing side by side with the United States. Germany will have to make its position far clearer when it forms a new government.
 
As for the future enlargement of the EU, especially with regard to Turkey, Merkel's stance has been very cold. At first, forms of a preferential relationship or of a special relationship were suggested, although it seems that this has been taken off the agenda to be replaced with strictly pursuing closer relations with Turkey. A coalition would mean that the Foreign Ministry would go to the Social Democrats, who have consistently advocated Turkish membership to the EU. How that circle will be squared will be an interesting development to be watched closely by political observers. It is highly unlikely that the Christian Democrats will make a U-turn, strongly supporting Turkey's entry into the EU; the most probable likelihood is that they will water down their public opposition to such a possibility.
 
Economic growth
 
The German economy is making a very slow and disjointed recovery, despite unemployment rising by a seasonally adjusted 7,000 to 2.95 million in August for the first time in three months with the adjusted unemployment rate remaining at 6.8 percent, the lowest in almost two decades. Inflation also rose 1.6 percent from a year earlier, compared with 1.9 percent in July, signaling that Europe's biggest economy is cooling down after a second quarter surge. Earlier this month, the government forecast in its latest economic report that growth was expected to normalize in the second half of 2013, after a 0.7 percent expansion rate between April and June.
 
Given that the whole of the EU is slowly recovering from the financial crisis, the long-term problem of economic growth is hoped to be alleviated through a very important short-term deal. The EU has begun negotiations with the United States concerning a potential transatlantic trade and investment partnership. The aim of such an agreement is to ensure that tariff reductions are rapidly agreed to with common technical standards adopted by both parties. When one bears in mind that the daily turnover in terms of goods and services between these two entities reaches 2 billion euros, making it the world's largest trade relationship, it becomes clear how truly important such a deal is.
 
If these talks succeed, it is forecast that up to 200 billion euros in savings will be achieved in terms of goods and services, with every European household benefiting to the tune of more than 500 euros, alongside the impact on the whole of the EU economy being a welcome extra 0.5 percent growth in gross domestic product (GDP). The new government probably will not be formed by the time the second round of negotiations takes place -- expected to be Oct. 7 -- though it will need to push the European Commission to negotiate speedily and wrap up this matter very soon. Bearing in mind that the German economy is highly dependent on exports, the US deal becomes far more important for Berlin than any other national capital.
 
On a personal note, it is clear to see with these election results that Angela Merkel -- referred to as the “Teflon Chancellor” -- is the pre-eminent female politician in Europe since former British Prime Minister Margaret Thatcher in the 1980s, as both won three consecutive general elections as leaders of their respective conservative parties. Merkel's experience in government is currently unmatched by any of the larger member states of the EU, which should mean that at future summits she will have an even more enhanced position to influence, cajole and direct. Europe desperately needs leadership and fresh ideas; one hopes that a new grand coalition can rise up to meet that task