Merkel is a shoo-in, but her choice of coalition partner is important

By Geoffrey Smith
September 22, 2017

Germany’s federal election campaign has been refreshingly boring. In a year when there was a chance of right-wing populist victories in the Netherlands and a real risk of France (Europe’s second-largest economy) tearing up the EU treaty and blowing up the Eurozone, Germany has threatened no such upsets. There has only ever been one likely outcome: a fourth term as chancellor for Angela Merkel.

Merkel’s Christian Democrats (CDU) and their Bavarian CSU sister party are so far ahead in the latest polls (37%, compared to 20% for her nearest challengers, the Social Democratic Party, or SPD) that the biggest unknown about the election is who Merkel will govern with.

According to pollsters Infratest dimap, four other parties could cross the 5% threshold needed to pick up seats in the Bundestag, the lower house of Germany’s federal parliament. That makes the task of forming a majority for Merkel trickier. The simplest option is to renew the current ‘Grand Coalition’ with the SPD. But the SPD risks sliding into irrelevance with a third term of playing junior partner to Merkel in recent years, and may prefer to rebuild in opposition. Merkel has ruled out any form of cooperation with the populist right-wing Alternative für Deutschland, so she could be dependent on either the pro-business Free Democrats, or the environmentalist and pacifist Greens—or a combination of both—for her majority.

Here’s a rundown of how Merkel’s key policies could unfold depending on the hand she gets dealt on Sunday.

  • Eurozone Reform: Merkel knows that the Eurozone needs more integration for the euro to survive in the long term. If President Emmanuel Macron can reinvigorate the French economy, she may swing behind ideas now being circulated for a “European Monetary Fund” and a Eurozone Finance Minister. The key date in the calendar is November 2018, when Italian Mario Draghi’s term as president of the powerful European Central Bank ends. Expect some intensive horse-trading, in which the SPD and Greens would give Merkel more freedom than the more euro-skeptic FDP to pool powers at the Eurozone level. Also, keep an eye on who will hold the purse-strings in any new arrangement.

  • Tax Cuts: Germany has the strongest fiscal position of all the G7 countries, having run a budget surplus for the last three years. All of the major parties have promised tax cuts ranging from 10 billion euros (SPD) to 30 billion (FDP). The country’s super-rich and the entrepreneur class, who have done very well out of Merkel’s previous three terms, will fare better if the FDP is in government; the SPD and Greens are likely to oppose any handouts for them.

  • Car Industry: This has been the only election in living memory where politicians could gain votes by bashing the car industry. The sector is the source of some 8% of jobs in Germany, and it had been fawned over by every chancellor until the diesel scandal made clear how many Germans the industry was killing (about 10,000 a year, by some recent estimates). Policies such as diesel bans and government mandates for electric vehicles are only possible if the Greens end up in the coalition. The likes of BMW, Daimler and Volkswagen will hope that either the SPD (afraid of industrial job losses) or FDP (afraid of falling industrial profits) will take the edges off Merkel’s new hawkish tone.

  • Russia: Since the invasion of Ukraine in 2014, Merkel has kept a solid consensus behind tough sanctions on Russia, despite howls of protest from the business lobby. Of the mainstream parties, the FDP is the most likely to break with that consensus, arguing that sanctions haven’t achieved their goals but have cost German business plenty. There are also many pro-Russian voices at both extremes of the spectrum: the far-left Linke party, which has the Soviet-era East German Communist Party in its DNA, and the cultural warriors of the far-right AfD both empathize more with Vladimir Putin’s Russia than with the tolerant, pro-European, mainstreamer in the chancellery. But Merkel has ignored them easily enough for the last three years and will probably continue to do so.

  • U.S. Relations: The protectionist, isolationist rhetoric of President Donald Trump goes down badly all across Germany, but at least after Sunday, Merkel will have more freedom to look for a rapprochement without having to fear losing votes. Germany’s dependence on its export sector means it lives in fear of the trade wars that Trump is threatening. Another key point is that EU policy toward the digital sector is heavily influenced by German concerns, and Silicon Valley will hope that the SPD and Greens, with their tough positions on data protection and corporate taxation, can be kept away from the levers of power.

CORRECTION: The original version of this story incorrectly said the SPD had served two consecutive terms as Merkel’s junior partner.

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