Germany's (Non-)Election and What it Means for Europe

Germany's (Non-)Election and What it Means for Europe

By Hans Kundnani

For a tantalizing two months in the spring, it looked as if Germany might actually have something like a real election this year—that is, a contest between at least two candidates with distinct policy programs that both have a chance of forming a government.

Chancellor Angela Merkel had already been weakened by her response to the refugee crisis and she was increasingly unpopular within her own Christian Democrat party. The Eurosceptic and anti-immigration party, Alternative für Deutschland (Alternative for Germany, AfD), had won a series of stunning successes in regional elections in 2016 and some Christian Democrats worried that it could replicate this success at a national level.

It remained difficult to see how the Social Democrats, which had been stuck in the mid-twenties in the polls for years, could do well enough to form a government for the first time since Gerhard Schröder won a second term as chancellor in 2002. In fact, the better the AfD did, the greater the chances of yet another grand coalition - which would be the third in four electoral periods. But after European Parliament President Martin Schulz was announced as its candidate at the end of January, the SPD suddenly shot up to around 30 percent—neck-and-neck with the Christian Democrats—and some polls suggested voters preferred him to Merkel.

What apparently made Schulz different from party leader Sigmar Gabriel, the economics minister since 2013 who had been widely expected to be the candidate, was that he was not implicated in the policies of the two grand coalitions under Merkel in which the SPD has been the junior partner. In particular since the financial crisis of 2008, the Social Democrats had become part of what Adam Tooze has called Germany's "anti-debt consensus"—it was the Social Democrat Peer Steinbrück who, as finance minister, in 2009 introduced the Schuldenbremse, or "debt break," that was subsequently imposed on the entire eurozone. But because Schulz's career had been spent in Brussels rather than Berlin, he could credibly attack Merkel.

Initially, it seemed as if, with Schulz as its candidate, the SPD might put some real distance between itself and Merkel on economic policy. In his first big campaign speech in Bielefeld in February, Schulz attacked the Agenda 2010 labour market reforms introduced by Schröder and criticized the increase in income inequality and the growth of insecure and badly paid jobs in Germany in the last decade, and called for more investment in education, infrastructure and digital technology.

However, while focusing on "social justice" within Germany, Schulz stopped short of offering a real alternative to Merkel's unyielding approach to the eurozone. Although he supported the idea of a eurozone investment fund proposed by French President Emmanuel Macron, he has backed away from more ambitious steps to mutualize eurozone debt. Nevertheless, the Christian Democrats told voters that Schulz wanted to create the "transfer union" that they fear—in other words, an EU in which the fiscally responsible endlessly subsidise the fiscally irresponsible.

In any case, by April, the Schulz bubble had burst. Support for the Social Democrats fell back down to the levels it had been before he became the candidate - in other words 15 points behind the Christian Democrats—and they badly lost a regional election in North Rhine Westphalia in May. In desperation, Schulz stepped up his rhetoric against Donald Trump—an apparent attempt to emulate Schröder, which won re-election in 2002 against the background of the looming Iraq war. But it didn't work. At the time of writing, polls project the Christian Democrats to win between 37 and 39 percent of the vote and the Social Democrats a mere 20 to 24 percent.

In other words, it is a foregone conclusion that Merkel will become chancellor again for the fourth time. That means the questions that remain to be answered by voters in the election on September 24th are secondary ones. Three, though, are particularly significant. First, what kind of coalition will Merkel lead after the election? Second, how badly, exactly, will the SPD do? Third, what role will the AfD play in the Bundestag during the next electoral period?

What kind of coalition Merkel forms will depend to a large extent on exactly how well the economic liberal Free Democrats (FDP) do in the election. They seemed to be a spent force after they got less than five percent of the vote and thus lost all their seats in the Bundestag in 2013. But they have made a comeback under a new leader, 38 year-old Christian Lindner, and are now projected to win between 8 and 10 percent of the vote. That means a centre-right coalition of the Christian Democrats and the Free Democrats ("black-yellow"), as in the period from 2009 to 2013, is once again a real possibility. It would certainly be the most straightforward.

Whether the SPD gets something like the disastrous 23 percent of the vote that Frank-Walter Steinmeier got in 2009 or the slightly better 26 percent that Peer Steinbrück got in 2013, another grand coalition is also still a possibility if the FDP does not get sufficient votes to form a majority in the Bundestag with the Christian Democrats. It could turn out to be the only possible two-party coalition. In that scenario, the SPD will face a difficult but familiar dilemma. Party strategists are well aware that being the junior partner in a coalition with Merkel is disastrous for them. But the electoral math may mean they do not have a choice—unless they are prepared to prompt another election, which they will worry that German voters may see as irresponsible.

In the spring it seemed as if Schulz—who some saw as a "populist of the centre"— might win back some voters who had rejected the SPD for the AfD. But as support for the SPD has collapsed, the AfD has also bounced back under new leaders Alexander Gauland and Alice Weidel. It is now polling at between 8 and 12 percent and looks certain to make it into the Bundestag for the first time. This will in itself be a significant change in the German political landscape - and in particular will put the government under some pressure on refugee and integration policy. But if there is another grand coalition and the AfD becomes the third biggest party—as some polls suggest it will—it will be de facto opposition.

What does all this mean for the rest of Europe? In truth, whatever the exact outcome of the election, it will make little difference one way or the other. This is in part because which ever party or parties join the coalition, they will be junior partners with limited influence over the overall direction of policy. But it is also a function of the extraordinary consensus in the centre ground of German politics. In so far as differences exist between the four parties that could become part of the government, they are a matter of details and nuances. The consensus is particularly strong on Europe.

Since Macron came out of nowhere to win the French president election in May, there has been a new mood of optimism within the EU. The hope was that Macron could reinvigorate—and rebalance—the relationship between France and Germany and make a breakthrough in the economic and institutional questions around the eurozone that Europe has struggled with for the last seven years. By demonstrating France's commitment to structural reform, Macron would, according to this narrative, establish credibility and persuade Germany to make concessions on fiscal rules and further debt mutualization.

Many "pro-Europeans" make a lot of Merkel's apparent openness to Macron's proposal to create a eurozone budget and finance minister and its manifesto commitment to turn the European Stability Mechanism (ESM) into a "European monetary fund." But there remain big differences between the French and German visions. Whereas the French want more risk sharing in the eurozone and imagine the new fund as a kind of embryonic eurozone treasury, the Germans see it as a way to increase control over EU member states' budgets and enforce the eurozone's fiscal rules.

The political establishment in Berlin wants Macron to succeed—they realize that if he doesn't, Marine Le Pen could win the next election in 2022. Some even recognize that Germany failed sufficiently to support previous centre-left and centre-right leaders such as Antonio Samaras and Matteo Renzi who stood between their countries and populist parties such as Syriza and the Five Star Movement. But Germans also worry about the costs to them of any "deal" with France ("Emmanuel Macron saves Europe...and Germany is supposed to pay," proclaimed the cover of the Spiegel after his election). Many reject the idea of any compromise between French and German visions for the single currency.

If the Free Democrats join the Christian Democrats in a "black-yellow" coalition, they may put some pressure on Merkel to take an even tougher approach to eurozone policy than she has taken so far (or could be used by her as an excuse for such a policy). In particular, Lindner has publicly called for Greece to be given a "new start without the euro"—that is, to be kicked out of the single currency, as Finance Minister Wolfgang Schäuble proposed in July 2015. But even if Lindner replaces Schäuble rather than becoming foreign minister as the leader of the junior coalition partner usually does, the dynamic between Merkel and the finance minister will likely be similar to the one during the last four years.

Conversely a grand coalition might seem to offer some hope of a softening of Germany's approach to the eurozone. But even if the SPD were to surpass the 26 percent of the vote it got in 2013, it would still, like the Free Democrats, be a junior partner. In any case, the SPD's timidity on eurozone policy suggests that, even if it were to insist on the finance ministry rather the foreign ministry, which many say it should and would, it would not make much of a difference.

Thus those who hope for a breakthrough in the eurozone after the election are likely to be disappointed. In so far as Schulz offered a softer alternative to Merkel's approach, it will have been implicitly rejected by the German voters to whom the chancellor is ultimately accountable and whose mood she tends to follow. Thus Merkel will in effect have been re-elected with a mandate to keep doing what she has been doing for the last seven years since the crisis began. In other words, Europe can expect more of the same from Germany.

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