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by Jamie Cater 29th September, 2017
3 min read

Germany: where now from here?

It has been an eventful few days in Germany since the electorate returned Angela Merkel for a fourth term as Chancellor. With coalition negotiations only just beginning and potentially lasting for weeks, the news has been dominated by two high-profile resignations: Frauke Petry’s departure from the AfD, and Wolfgang Schäuble’s decision to step down as Finance Minister in order to become President of Parliament. Schäuble’s move from the Finance Ministry had been expected; Petry’s resignation not just from her position as leader of the AfD but from the party altogether has come as more of a surprise to a country still coming to terms with the success enjoyed by the far-right on Sunday evening.

It remains to be seen how the movements of these two key figures affects the post-election political landscape in Germany as Merkel gets to work on forming a new government. There are many reasons why the AfD will not be part of the new administration, and the change in the party’s leadership will have no consequences in this regard. However, it may lead to a shift in the dynamic of the opposition in the Bundestag, with Petry sitting as an independent. The SPD has already ratcheted up the rhetoric after the election – its new parliamentary leader, Andrea Nahles, has warned the CDU/CSU ‘will get what’s coming to them’ – and the AfD will provide similarly vigorous opposition, albeit from a wholly different political angle.

As far as the Finance Ministry is concerned, as with other key departments and policy areas, this naturally depends on the shape of the coalition that Merkel is able to form. Despite uncompromising talk from the FDP in recent days, a so-called ‘Jamaica’ coalition comprising the CDU/CSU, FDP and Greens still appears to be the most likely way forward, and the personnel from the respective parties appointed to each government department will be the first step in deciphering how policy will develop during Merkel’s fourth – and potentially final – term in office.

Economy

With Schäuble’s departure having been anticipated by many, speculation has been rife as to who will replace the man credited with securing Germany’s rapid recovery from recession since 2009. The FDP has not hidden the fact that it would like to take control of the Ministry in the event that the party forms part of a coalition and although its leader, Christian Lindner, has suggested that he would not be willing to take the post, appointing an FDP representative as Finance Minister would be a logical step for Merkel. Schäuble has become renowned for his hawkish approach to fiscal policy and an FDP Finance Minister should be expected to behave in much the same way. A staunchly pro-commerce party, businesses can be confident that should the next Finance Minister come from the FDP, they will continue to keep taxes low and maintain a welcoming environment for investment.

Public Services

During the election campaign, the SPD promised over €30 billion of public investment, including vast increases in spending on education, health and social care. While most of the other parties were conservative in their spending promises by comparison, the FDP has also proposed to increase spending on education, funded largely by selling the stakes the government currently holds in a number of infrastructure assets. Moderate increases in funding for public services are likely to command support across a Jamaica coalition, although as above, the Finance Ministry should be expected to continue to keep a tight hold of the purse strings.

Europe

The future of Europe may be where there is the most potential for a three-way coalition between the CDU/CSU, FDP and Greens to falter. The smaller parties’ respective reactions to French President Emmanuel Macron’s speech yesterday were telling: the FDP, seemingly increasingly inclined towards a moderate Euroscepticism, argued that Macron’s proposals were the ‘wrong idea’, while the Greens responded positively. Merkel’s position somewhere in the middle may be able to bind the two together, but it is likely to be a difficult job to marry the positions of her potential partners together.

The journey from here for Germany is not yet clear, but a three-way coalition will throw up both opportunities and challenges as Merkel’s new government responds to lively political opposition on key policy issues, attempts to reinforce the country’s strong economic position and considers how to work with France to reform the European Union.

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