Tough German coalition talks to cause uncertainty over eurozone
SEVERAL weeks of contorted and confusing coalition talks lie in store in Germany after Chancellor Angela Merkel’s victory in Sunday’s elections. This could bring delays and raise fresh hurdles to measures to reinforce economic and monetary union.
The most probable coalition partner for Ms Merkel’s Christian Democratic Union (CDU) is the opposition Social Democratic Party (SPD), which has backed her euro rescue measures over the past three and a half years. But no one should believe that relaxing austerity in debtridden southern countries and mutualising public debt in Europe — policies the Social Democrats have generally supported in opposition — will now suddenly become the official Berlin line.
The German elections have been fought principally on redistributing Germany’s wealth and income towards the worse-off at home, not in Europe. Germany’s growing concentration on putting its own economic interests first may mean that, paradoxically, the SPD could be a much more troublesome partner in government than in opposition.
Uncertainty in Berlin over structural measures for the eurozone will increase the importance in the next few weeks of statements on these issues from the independent Bundesbank and the German constitutional court. The newly formed anti-euro Alternative party (AfD) did better than expected, but narrowly failed to win the 5% of votes required for parliamentary representation.
The AfD, expected to marshal a big protest vote in next May’s European election, will remain an important thorn in Ms Merkel’s side.
Adding to the complexity, the SPD will be anxious to avoid taking the blame for measures such as expected debt relief for Greece and other peripheral eurozone countries that will be unpopular and costly.
Considerable importance will be attached to the choice of finance minister who, in a CDU-SPD government, would almost certainly be a Social Democrat, leading to a shift sideways or departure from government for veteran Wolfgang Schäuble, the incumbent.
Jörg Asmussen, the German board member at the European Central Bank, a former finance ministry official and a confidant of Mr Schäuble, is a strong contender for the job.
Ms Merkel’s better-than-expected victory margin of 16 percentage points over the SPD — taking her to within a few seats from an absolute Bundestag majority – is bittersweet.
The German leader is at the height of her powers, but in many ways the polling triumph has weakened her. It was achieved at the expense of the demise of her coalition partner of the past four years, the liberal Free Democrats (FDP), which failed to win election to the Bundestag for the first time in postwar Germany.
The SPD will probably move to the left after its defeated candidate, former finance minister Peer Steinbrück, retires from frontline politics, as expected. With the CDU’s voting lead over the SPD now the highest since 1957, many Merkel supporters within and outside parliament will be bitterly reluctant to make concessions to the SPD. The Social Democrats, for their part, which saw their support fall sharply during the last Grand Coalition under Ms Merkel’s leadership that ended in 2009, will approach coalition negotiations with scepticism and suspicion.
Purely arithmetically, the SPD could form a coalition against Ms Merkel with the support of the Greens and the far-Left party, which both saw their voting share fall in Sunday’s election. Although the Social Democrats have ruled out an alliance with the farLeft, some party activists are bound to see this as a powerful potential antidote to Ms Merkel’s ascendancy.
The SPD looks likely to expand further its majority in the upper house of parliament, the Bundesrat. This fol- lows the failure of the CDU-FDP regional coalition to maintain its majority in an important state election in Hesse yesterday, probably depriving the CDU of power in that state.
On the eurozone front, two-thirds of Greece’s government debt is owed to official creditors abroad, including various European rescue funds as well as the European Central Bank.
So probable debt restructuring for Athens will for the first time require taxpayers from euro members to take losses, both directly and indirectly (through the need to compensate for the losses taken by central banks). This would be a highly unpopular outcome in Germany, which Ms Merkel so far has made every effort to play down.
The other principal European countries subject to emergency credit programmes, Portugal and Ireland, will almost certainly require further official credits next year and may demand, too, a softening of debt conditions.
In coming months, the current favourable German economic picture of low inflation, low unemployment, low interest rates and reasonable economic growth is likely to give way to a less propitious environment. The present conjuncture marks Ms Merkel’s golden age. From now on, it all gets much more difficult.
IF SPAIN is the problem,” Spanish philosopher Jose Ortega y Gasset once said, “then Europe is the solution.” Were he to stand now in the economic wreckage of the Spanish experiment with Europe, he would change his mind. Through its membership of the European Union (EU), Spain simply got too much easy money, too quickly. Now its bubble has burst and Europe is not a happy place.
So it is probably fortunate for Spaniards and Germans alike that Angela Merkel, the conservative German chancellor, so handsomely won last Sunday’s general election. As Europe’s more spendthrift citizens have wrought alarming damage to their economies, Ms Merkel, despite spending at least the cost of one full year of running her own country on helping out struggling Europe, has largely stood firm against the cries for help, for more easy money and for bail-outs.
Some people like to compare Ms Merkel to the late UK prime minister, Margaret Thatcher. But they are wide of the mark. Ms Thatcher was suspicious of Europe in an intensely plebeian way — “they” were tricky, ate funny food, did not speak English and dreamt of the destruction of the British way of life. Or something like that. Ms Merkel understands it, is not afraid of it, and thinks she knows what is good for it. And she probably does. How many times has she stood up against intense pressure to simply bail out her southern neighbours? Germans are lucky and they know it, which probably best explains why they voted her back into office (although without an overall majority, which will probably prompt a grand coalition with the Social Democrats).
Ms Merkel learnt her politics at the feet of former chancellor Helmut Kohl — there was no more determined European than he and it would be foolish to doubt her commitment to making the EU and eurozone ideas work. Both are, after all, ideas that grew out of the Second World War and the firm French and German conviction after 1945 that they should never go to war again. There are, of course, no guarantees but the Germans are in the deal. It is just that, having emerged from the economic crises of the past six years as the continent's strongest economy, she is unlikely to change her approach to its economic woes.
It means she will only reluctantly spend a German tax euro bailing out a Spanish government that, like Greece, Italy and, to an extent, France, has gorged for years on capital from Brussels. With her at the wheel, Europe will recover, but in the way Germans recover — through hard work. They did after the war and they did again after Mr Kohl merged the East German and West German currencies at the insane rate of one to one in the 1990s.
There are lessons, too, in the Merkel victory for SA, which has inflamed decision makers in high places in Germany with its ideologically driven moves to stop signing bilateral investment treaties with important trading partners. The treaties guarantee the safety of investments made in SA by, say, German companies such as BMW. Scrapping them would enable the government to force big foreign investors to bend to local empowerment rules but the Germans, in particular, have cried foul. SA needs to tread warily and ask itself whether the treaties are worth the trouble.
It may be true Ms Merkel needs to make sure the economies (SA included) to which her industrialists export most of what they produce, are flush enough to buy. And it may be true that SA is a not insignificant market for German goods.
But the investment treaties are the stuff of touchstones for leaders such as Ms Merkel and there is no point in begging for trouble.