CDU/CSU’s Angela Merkel will remain the German ‘Bundeskanzler’ for the next four years! Two questions: with whom will she do it and what will be the consequences for Germany and the EU!

It doesn’t happen often that I’m totally right and totally mistaken upon the same subject within the same month. September 2013 is such a month.

In my article upon Germany from 8 September, I wrote that the current German Bundeskanzler Angela Merkel probably had an easy re-election ahead on Sunday, September 22nd:

The German political situation is very stable. It is very plausible that German chancellor Angela Merkel of the Christian-Democrat Union (CDU) will easily win the elections for the Bundestag (German House of Commons) for a third time and continue her policy of austerity and tight budgeting.

However, in my article about the end of the economic crisis in The Netherlands, I “flip-flopped” and changed my tune, under the influence of the latest German opinion polls. I stated that the election would not be a walk-in-the-park after all for Angela Merkel.

I was dead wrong: with 41.5% of the votes, Angela Merkel’s christian-democrat CDU/CSU combination had indeed a landslide victory over the second biggest party, the social-democrat SPD, with 25.7% (see the chart below)

 

The final results of the German elections 2013
Graph: courtesy of www.nos.nl
Click to enlarge

With this result of the elections, it seems that Angela Merkel missed only by a whisker the absolute majority in the Bundestag (see the following table). This is the consequence of the fact that German parties need to be above a 5% threshold, in order to be elected into the Bundestag. After these elections, the results of the liberal FDP and the anti-Euro party ‘Alternative für Deutschland’ (Alternative for Germany) have been striken. 

 

The results of the German elections 2013,
recalculated to seats in the Bundestage
Graph: courtesy of www.nos.nl
Click to enlarge

[Disclaimer: I cannot warrant that my calculations as shown above are right, as I don’t know the exact method for dividing the “rest-votes” over the largest parties, as it will be used for the Bundestag – EL]. 

Nevertheless, the picture of a very powerful German leader remains. A leader, who has been rewarded for her ‘good deeds’ as a determined, stable and frugal German chancellor. She became the ‘de facto’ leader of Europe and a stable anchor for the financial markets, but without wasting German tax-payer’s money.

While Peer Steinbrück’s SPD has been ‘rewarded’ with a 2.7% rise for its opposition to the current German government, when compared to the elections of 2009, ‘Angie’ enjoyed no less than a 7.7% improvement.

For Merkel’s coalition partner FDP, the grapes were very sour yesterday. Where the party still enjoyed 14.6% of the votes in 2009, it has almost been annihilated in 2013: only 4.8% of the voters voted FDP, which is below the 5% threshold. Consequently, the FDP will vanish from the Bundestag.

This is the consequence of a phenomenon, called the Prime-Minister’s bonus: where the largest party in a two-party coalition (the party, which delivers the PM) often receives the credits for the things that went right during the previous government stint, the smallest coalition party is often blamed for everything that went wrong in the coalition. Especially, by the people who voted for the latter during the last elections.

In other words: the smallest party is punished for having been smaller and for not having as much influence as the largest party. This happened to the FDP during the 2013 elections and to the SPD in 2009 (to 23% from 34.2% in 2005).

Consequently, the results of of these elections bring up two very important questions for Germany and beyond:

• Which party will bring the sacrifice to step into a government with Merkel’s CDU/CSU and consequently run the ‘inevitable’ risk of being annihilated in the elections of 2017?
  
• What will be the consequences of the new German coalition for Germany itself and for the rest of the EU? 

Which party will start a coalition with Angela Merkel?

The most obvious answer to this question would be: the SPD.

This is probably the most desired choice by Angela Merkel, as it would bring a broad and probably stable, middle-of-the-road coalition, without too outspoken figures (if we conveniently forget Steinbrück’s infamous “Stinkefinger” incident).

On top of that, a coalition with almost 80% of the seats in the Bundestag (according to my calculations), is a strong and decisive coalition, which can take some tough decisions for Germany, without being slaughtered in parliament.

However, the SPD has a lot to lose in such a coalition:

• the party will have to make a lot of impopular decisions, for which it is undoubtledly blamed at the following elections. The real advantages for the SPD are therefore not certain at all.
  
• besides that, Steinbrück might be forced to act as a stooge for Angela Merkel: making at least half of the jokes, but never receiving the applause for it. 

Is this the reason that the SPD used today (and probably the rest of the week) to ‘lick its wounds’, before taking a decision on a possible red/blue coalition in Germany?

Although this CDU/CSU/SPD coalition is clearly the favorite possibility of many Germany-watchers, I am not so convinced that such a coalition will indeed emerge, due to the aforementioned reasons.

In my opinion, there is a second “dark horse” possibility for a German coalition: a coalition of CDU/CSU with the Green Party (Die Grüne).

When in 1998 Bundeskanzler-to-be Gerhard Schröder (SPD) stepped into a coalition with Die Grüne of the future Minister of Foreign Affairs Joschka Fischer, everybody expected a disaster: a cabinet like a bad “Hollywood” marriage, with lots of arguing, fighting and intrigues.

Instead, this coalition became one of the strongest and most decisive German cabinets since the Second World War. It turned the former ‘sick man of Europe’ into the Golden Boy of the EU, during seven years and two almost full stints. And Joschka Fischer became one of the most respected Foreign Affairs ministers in recent German history.

At this very moment, the Green party has 8.4% of the votes (10% of the seats) and it has roughly two options:

• either it remains in the German opposition for four more years and it hopes to get a lousy 4% in extra voters in 2017;
  
• or it takes the gamble and steps into a coalition with the CDU/CSU, where it can ask for a lot of pork for its voters. 

As I consider that the Green party has virtually nothing to lose (with only 3% above the 5% threshold) and a lot to win by this coalition, I think that this is a realistic possibility, on their behalf.

And Merkel? When she notices the (presumed) reluctancy of the SPD to form a coalition and reckons that she has to do a lot of concessions in order to lure this party, a coalition with the Green party might not sound so bad after all.

She probably also remembers the strenght of the earlier SPD/Grüne coalition and might decide to give it a try, when the negotiations with the SPD do fail.

In my opinion, this is even the most plausible solution.

What will be the consequences for Germany and the EU

This brings us to the second question. To be more specific concerning question number two, I wrote the following lines on 8 September (see the aforementioned link):

However, there are some things in Germany that should worry the objective inquirer, as they could bring division in the country and disturb the ideal image of Germany in the future.

These things have without a doubt something to do with Schröder’s wage restraint policy, the rigid budgettary aproach of Angela Merkel, the invention of mini-jobs and with the downfall of the German heavy industry and the difficult climb up-the-hill of East-Germany, formerly known as the German Democratic Republic. Keywords: poverty and debt!

For either of both coalitions (with SPD or with the Green party), I am certain that the sharpest edges of Merkel’s economic policy of the last four year must be removed: I expect that the mini-jobs – the small jobs with a tax-free, social security-free €400 payment per month – will vanish, as both the reds and the greens won’t be charmed at all by this initiative, which enlarges the differences in income and future between the “haves” and the “have-nots”. I also think that the times of German wage restraint are well behind us, with either of both coalitions at the helm.

In reality, I am convinced that the Merkel government is forced to step onto a path, which brings Keynesian stimulus one step closer and which further opens the road towards green, environmentally friendly energy, as a substitute for the nuclear power plants that were abolished after the Fukushima nuclear disaster.

Nevertheless, I have little doubt that the world-famous German manufacturing and financial/business services industries, in any kind, will remain number one for the next Merkel government.

Further, it is my strong believe that the German frugality will remain: where I earlier mentioned Keynesian stimulus, I didn’t mean “quantitativen Ausdehnung” (i.e. Quantitative Easing) in an ‘American-ish’ way. The fear for the hyperinflation from the Interbellum is still strong in Germany and thus I think that both the SPD and the Green party won’t force Merkel to let the money-press go berzerk (by deploying billions of Euro’s in extra Bunds). Therefore the financial markets can rest assured: whatever coalition might be formed in the coming weeks, there won’t be very much change in Germany, is my assumption.

Which brings me to the European Union: the German elections will have been followed with mixed feelings within the European Union.

The governments in the north/western Euro-zone countries will have uttered a sigh of relief after Merkel’s landslide victory, afraid as they were for a ‘spending-happy’, Keynesian-oriented, left-wing cabinet. With Merkel at the helm, The Netherlands, Austria and Finland hope to continue their policy of “choking” the PIIGS-countries into fiscal responsibility, without having to write a penny off on PIIGS debt.

However, also in the PIIGS-countries (Portugal, Italy, Ireland, Greece and Spain), Eastern Europe and France, the end-result of the German elections will have been anticipated with an interest far above average, but for exactly the opposite reasons.

As the PIIGS countries, Eastern Europe and France must have hoped to get some serious leeway for economic reforms, remission of debt and Keynesian stimulus in order to help the battered economies in these countries, the results of the German elections must have been a bitter disappointment. That François Hollande was about the first government-leader to congratulate Merkel with her victory, doesn’t change much about this fact.

Conclusion:

My personal hope is that Germany changes its financial and economic policy for the Euro-zone, under the influence of either the SPD or the Green party.

Without wanting to open the floodgates for mindless, Keynesian stimulus in large amounts, I am convinced that neither the PIIGS countries, nor France or the East-European countries are really helped with the ‘financially choking’ policy, which Merkel has maintained during the last four years.

Unemployment has been soaring and has reached intolerable levels in Greece, Spain and some East-European countries, especially for the youngsters, who are especially victimized by this crisis. In my opinion, the financial restraint policy has led nowhere within Europe to real economic growth, but it led to economic decline and ever-larger financial and economic problems for the countries hit hardest by the crisis.

I therefore hope that the new German government will finally look beyond the 3% threshold of the European Stability and Growth Pact.

I fear, however, that Merkel is planning to continue the same mindless policy of austerity, austerity and more austerity, happly applauded by the clueless Dutch Rutte Cabinet. In case of the latter, this will mean that the Euro-crisis will be back on the map within a few months.

For more information on this subject, please read this very interesting article.