The German election was a big win for the Euro and the EU. The anti Euro party did not quite manage the 5% needed to gain seats in the Parliament, whilst all the other elected parties are strongly in favour of the Euro and EU integration. Mrs Merkel heralded her victory as a victory for European integration. German PR, much praised by some on this site, ensured the near 10% who voted FDP and AFD went unrepresented by their parties in Parliament.
Whilst Mrs Merkel is enjoying the plaudits for boosting her party’s vote and getting close to winning an outright majority, it is necessary to grasp that the election has not made governing either Germany or the Euro any easier, and in some ways has added to Mrs Merkel’s difficulties. The main vote change was a big shift of votes from the more free market more Euro cautious FDP to Mrs Merkel’s party. Her coalition partner lost all their seats and has been all but destroyed for the time being as a political force. This follows on the crushing defeat of her main opponents, the SDP, in 2009 after they had joined her in coalition in 2005.
There are two consequences from these changes. The first is that Mrs Merkel’s policies, dragged in the direction of less spending, more free markets by the FDP are no longer under that pressure. The second is the SDP – and the Greens- will be understandably worried about any offer to join Mrs Merkel in coalition, as it does not look like a good idea for them. The Leader of the SDP made a very vocal rejection of the idea that he personally would serve in a Merkel government both before and immediately after the election.
There are four possible outcomes. The first is a coalition with the SDP. They will demand a Minimum Wage and other social legislation. They are unlikely to be much more well disposed to bailing out the Greeks than Mrs Merkel, as they will be fresh from an election where the German people made clear their hostility to paying the bills for the south of the currency zone. As the SDP leader has ruled out himself serving in a Merkel led government, it would require another senior SDP figure to volunteer, and may lead to a change of leader of the SDP.
The second is a coalition with the Greens, who might in the end find the lure of office too great and help her out. They will make more demands on renewables and other energy issues, and may also pursue the left of centre employment agenda as well. Mrs Merkel’s past U turn on nuclear makes this option easier.
The third is Mrs Merkel cannot agree a coalition with either the Greens or the SDP. There is no tradition of minority government in Germany, and it may mean an early new election, after a period of government doing nothing to provoke the Parliament.
The fourth is the SDP and Greens get over their aversion to the rest of the left in the Parliament and form a grand socialist coalition, something they have always declined to do. German commentary appears to find this very unlikely. Such a red-red-green coalition would want to pursue a social agenda on labour law and minimum wage, higher spending and deficits, stricter controls on markets and finance, and maybe disarmament/neutrality policies.
Some UK commentators say that an SDP or Green – Merkel coalition will be keener to subsidise the south and west of the Euro zone and accept debt write offs. I am not so sure. Each German party will have heard from the doorsteps how unpopular using German tax money to bail out other countries still remains. The SDP and Greens want to spend more subsidising and investing in Germany, not in Greece or Cyprus. They will be very conscious of how dangerous it is in coalition with Mrs Merkel and will not want the blame for unpopular Euro bail out policies to be landed on them.
Mrs Merkel did a good job keeping the Euro crisis off the agenda in the run up to her election. Now she does have to tackle the banking crisis and proto union, and the issues over financing the governments and balance of payments deficits of the weaker countries.
Ironically her famous grand victory was not grand enough to give her a majority. In a way it has left her more exposed than when she had the FDP as her coalition partners. If she has enough of the conservative in her, allying with either the Greens or the SDP is going to be a trial. Let’s hope her effusive united Europe rhetoric strengthens sinews in the UK for more independence.