Germany’s election, the EU, and the future of the Euro

Does Angela Merkel’s probable electoral victory have long-standing effects on the Euro?

German Chancellor Angela Merkel "is generally seen as shrewd, pragmatic in the extreme and lacking any long-time vision", writes Kai Arzheimer [AP]

On September 22, Germans will elect a new parliament, which, in turn, will select the next Chancellor (Prime Minister) of Germany. For a person to become Chancellor, an inaugural vote of confidence by a majority of the MPs is required. Though German electoral law looks complicated on the surface, the system is basically proportional and leads to coalition governments. A five percent electoral threshold is designed to keep the rascals out and avoid excessive fragmentation.

The result is moderate multi-partyism. While all parties co-operate formally and informally, there is a general perception of two camps in German politics: a “bourgeois” block consisting of the Liberals and the Christian Democrats on the one hand and a leftist block formed by the SPD and the Greens.

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The Left, which is the result of a merger between the former East German socialist state party and a group of West German SPD dissidents, does not easily fit into this classification: While the SPD co-operates with them in the Eastern Lander (states), they have repeatedly ruled out any sort of coalition or toleration arrangement in West Germany or at the national level.

The relatively high electoral threshold provides strong incentive for tactical voting: Voters who are afraid to waste their votes on a party that could end up below the threshold might opt for their second preference within the block instead. Conversely, supporters of one of the major parties occasionally vote for the smaller party within the camp to strengthen the block as a whole and bring about their preferred coalition.

The main candidates and their parties

The incumbent Chancellor is Angela Merkel, undisputed leader of the Christian Democrats, who is hoping to win a third term. She wants to continue the centre-right coalition she has led since 2009. If push comes to shove, however, she would be willing to revive the “Grand Coalition” with the Social Democrats, with whom she governed from 2005 to 2009.

Merkel has recently moved her Christian Democrats to the centre on issues such as the environment, state-sponsored day care, or gay marriages. She is generally seen as shrewd, pragmatic in the extreme and lacking any long-time vision. While she clearly prefers a Christian/Liberal coalition over a new Grand Coalition, the CDU is now adamant that CDU voters should not support the FDP for tactical reasons.

Merkel’s main opponent is Peer Steinbruck, who served as Finance Minister in Merkel’s first cabinet from 2005 to 2009. Steinbruck was not the obvious candidate. While his quick wits and his habit of talking straight brings a breath of fresh air to any political debate, voters and the media tend to perceive him as rash and foul-mouthed. As Finance Minister, he made headlines (and created a minor diplomatic crisis) by suggesting that Germany should “send out the cavalry” to root out Swiss tax havens. And only a week before the election, he let himself be photographed for a magazine cover making a rude gesture.

Two younger claimants to the candidacy – party leader Sigmar Gabriel and former Foreign Minister and head of the parliamentary group Frank-Walter Steinmeier – decided to sit this on out, perhaps hoping for a better chance in 2017. Surveys show that a clear majority of voters would prefer Merkel over Steinbruck if the Chancellor was directly elected. The party’s major problem, however, is structural: competition from the Left, which presents a more radical alternative to the SPD’s reformist, pragmatic and basically pro-capitalist policies.

What is the most likely outcome?

In all current polls, Merkel’s Christian Democrats are by far the strongest party. If this is any guideline, about 40 percent will vote for the CDU/CSU, while the SPD will attract only 28 percent or less of the vote. The Greens and the Left are poised to garner about 10 percent and 8 percent, respectively, while the FDP is hovering just about the threshold. Two non-established parties – the eurosceptic AfD and the pro-Internet “Pirates” – have been polling consistently less than five percent for months, but they might still enter parliament, given the usual margin of error.

Bavaria state election kicks off

Just a week before the September 22, the FDP did not enter parliament in a state election in the large Land of Bavaria. Although Bavaria is by no means representative for Germany as a whole, and although Bavarian voters will vote differently in a national context, this was widely seen as a bellwether. For the FDP, this could go either way: Voters could understand they urgency to support the ailing party, or they could write them off completely and vote CDu instead.

If the FDP enters parliament, the current coalition will most probably be able to continue with a much reduced majority. If they fail, or if the three left parties combined have a bare minority, or if a sixth party enters parliament, the result will be a another Grand Coalition led by Merkel and her Christian Democrats.

There is no way that the SPD would enter any sort of agreement with the Left. Bad blood between the main party and the renegades aside, the SPD and the Left disagree on a whole host of national and foreign policy issues. This has not hindered a pragmatic sort of co-operation at the local and regional level in East Germany but would prove disastrous at the national level. Perhaps even more importantly, even the most cautious toleration arrangements with the Left in Western Lander have cost the SPD dearly. The SPD and Steinbruck have repeatedly promised to work with the Left in a national government.  Going back on their word would damage their reputation with West German voters in an unprecedented way.

From what we know today, it is next to impossible that Steinbruck will be Chancellor in October. The real alternative is between a weakened Christian-Liberal and a Grand Coalition. Either will be led by Angela Merkel.

What does it mean for Europe and the Euro?

Germany is unusual among Western Europe countries because a very broad pro-Euro, pro-European consensus among its elites still holds. Within the parties in the current parliament, only the Left is slightly ambivalent, but that is mainly because they believe that bailouts and austerity programs only serve the interests of banks and multinational corporations.

The SPD is no exception from that rule. Quite the contrary:  The party (which supported Greece’s original bid to join the Euro) voted with the government on each of the various bailout packages and on the ESM. unlike some government backbenchers, they also supported the quasi-constitutional fiscal compound, which required a two-thirds majority in both houses. And as Finance Minister, Steinbruck was central to Merkel’s early attempts to stem the spread of the financial crisis.

Predictably, Europe and the Euro (or in fact any foreign policies) were non-issues during the campaign. While Steinbruck cautiously emphasised the aspect of European solidarity, Merkel has toned down her austerity rhetoric, too. Only four weeks before the election, she even allowed her current Finance Minister Wolfgang Schaubele to cautiously float the idea of another package for Greece in 2014.

Navigating the Euro crisis with the SPD would be easier for Merkel than continuing with her present partner.

Part of this tacit agreement between the main parties can be explained by strategy: Neither SPD nor CDU/CSU could be interested in strengthening the eurosceptic AfD (which seems to draw supporters from both camps). But the fact remains that both major parties are fully committed to what they dub “the European project”, which includes the Euro.

With respect to Europe, any future German government will be constrained by three factors: a powerful, assertive parliament, a very active constitutional court that has recently further strengthened parliamentary control over European affairs, and a public that does neither understand the scale of the crisis nor the rationale for any further payouts to member states in the South.

In a sense, navigating the Euro crisis with the SPD would be easier for Merkel than continuing with her present partner. First, she would be virtually guaranteed a majority for prospective changes to the constitution required by further European treaty revisions. Second, the FDP, while being pro-Europe, have always presented themselves as guardians of financial prudence and fiscal stability. If the AfD establish themselves as an alternative champion of the German tax payer and if/when more German money is required to bail out the Southern European states, the FDP could jump ship.

In all honesty, no one knows what Merkel’s future European policies will look like. Over the six months or so preceding the election, the Chancellor successfully gave the impression that the crisis was more or less over. The European institutions and other member state governments have kept very quiet as to not create an anti-European backlash in Germany. And yet, many observers expect that the crisis will be back, and that Germany as the union’s largest economy will have to do something more permanent about it.

Over the last four years, Merkel (who has mostly taken her Foreign Minister out of the European equation) has been wavering between classic intergovernmental co-operation and a more supranational approach (“banking union” and fiscal compound). The latter might provide a more durable solution but is not very popular at home or with the British and the French.

Will she now push for stronger European institutions? Will she support David Cameron’s notion that national sovereignty needs to be protected, and that some powers should be “repatriated”? Does she indeed have any ideas of what is to come for Europe over the next four years, and how she is going to deal with it? Some of her critics argue that her approach to politics is incremental and driven by external events, or, to put it more succinctly: wait-and-see. Others argue that her perspective is primary national and international, but not necessarily European: with roughly 40 percent of German exports going to countries outside the Eu, Europe is certainly important, but by no means her only concern.

For Europe, a lot is riding on this election. But paradoxically, the outcome will not matter much.

Unless something truly dramatic comes up between now and September 22, Merkel will be re-elected. Europe and the Eurozone will have to live with her utterly pragmatic and sometimes enigmatic leadership for years to come.

Kai Arzheimer is a German political scientist and professor at University of Mainz. His research focuses on voting behaviour, the Right, and German political parties.