Germany: Slowly crouching towards a new government - Natixis

Dirk Schumacher, Research Analyst at Natixis, note that a SPD party convention has approved the start of coalition talks between the Social Democrats and chancellor Merkel’s CDU/CSU and the narrow outcome of latest vote and demands for a re-negotiation of the preliminary agreement reached earlier, points to difficult negotiations ahead.

Key Quotes

“Two more hurdles remain at this stage. First, SPD and CDU/CSU need to agree on a so-called coalition contract. The flexibility on both sides is limited and a failure to reach consensus cannot be ruled out. Second, SPD party members will have to approve the final agreement. There is a high degree of uncertainty with respect to the outcome of this vote. Hence, early elections remain a clear possibility at this point.”

“A marriage not made in heaven …

• Another grand coalition remains our base line scenario. But recent narrow vote – only 56% of the SPD delegates were in favour of starting coalition talks with the CDU/CSU – clearly shows the level of disenchantment among the SPD. It is safe to assume that this sentiment is also widely shared among the more than 400,000 SPD members, who will have to approve the final agreement. In order to secure the support from its base, the SPD leadership will now try to wrangle some concessions from the CDU/CSU in the up-coming negotiations. There seem to be three topics the SPD will concentrate on: a more liberal approach to family re-union for refugees, health care reform and limits for temporary work. At least when it comes to refugees, the room for maneuver for the CDU/CSU, in particular for the CSU, is limited. Several leading members from CDU and CSU have stressed that there won’t be any significant changes to the preliminary deal.
• The argument for another grand coalition mainly rests on the assessment that early elections are clearly less appealing for all sides. But the SPD base may see things differently. Neither another attempt to from a so-called Jamaica coalition or a minority government seem likely in that case, leaving early elections around summer as the only real alternative.”

… implying an instable government

• Another replay of the grand coalition is likely to face a lot of infighting amongst the coalition partners. Despite vows to reform and modernize the country we would expect a new grand coalition government to take a piecemeal approach. Moreover, the new government will be inherently instable, despite chancellor Merkel’s best intentions to appease all sides. This new instability is likely to remain a feature for German politics in the future, as the political landscape has clearly become more difficult with the advent of the right wing AfD party.”