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German elections: Angie, where will it lead us from here?

Merkel wins big, but faces a coalition conundrum. Does that mean a softening of austerity for Europe?

Merkel 09 23 2013Enlarge
Merkel on Monday (Johannes Eisele/AFP/Getty Images)

BRUSSELS, Belgium — Sunday's elections in Germany were a stunning personal triumph for Angela Merkel.

The chancellor’s demolition of the opposition was so complete that she came close to giving her center-right group an outright majority in 630-seat Bundestag, something no politician has achieved since Konrad Adenauer, the Federal Republic’s post-war rebuilder, in 1957.

The victory underscores her position as the dominant leader of Europe's most powerful country, marking an overwhelming vote of confidence in her handling of the euro zone debt crisis: keeping the currency alive without overburdening the German taxpayer.

But although Europe can expect more of the same, it’s not entirely clear just how much.

Having fallen just 30 seats short of an absolute majority in the lower house of parliament, Merkel's Christian Democrats (CDU/CSU) must form a coalition with one of the parties they trounced.

Getting there looks set to give her a headache.

Merkel’s preferred choice would have been the business-friendly Free Democratic Party (FDP), her partner in power during the past four years. But voters had other ideas: The party won too few votes to qualify for seats in parliament for the first time since 1949.

Philipp Roesler, Merkel's outgoing economics minister, has resigned as party leader. Foreign Minister Guido Westerwelle, also of the FDP, will slip from the international scene.

The Left — a party born from the ashes of East Germany's old Communist Party — did well on Sunday. It came third with 8.6 percent, but its policies and history are anathema to Merkel.

That leaves two choices: a so-called Grand Coalition with the Social Democrats (SPD), who finished second with 25.7 percent, or a groundbreaking alliance with the Greens, who won 8.4 percent of the vote.

"We are, of course, open for talks,” Merkel told a news conference Monday after celebrating the "super" victory that gave the CDU/CSU 41.5 percent. “Germany needs a stable government and we will fulfill this task."

Either coalition choice will be difficult to make. However, unlike its neighbors Belgium and the Netherlands — where forming governments often takes many months — Germany has no tradition of protracted political horsetrading. There’s little risk of a power vacuum in Europe's largest economy.

A coalition between the Merkel and the Social Democrats seems the most likely option. They worked together during her first term in 2005-2009. But taking part cost the SPD votes, and this time the center-left party may feel it needs time to rebuild rather than enter a government very much as the junior partner.

The party has already signaled it will play hardball. It's expected to demand key ministerial positions — maybe even the Finance Ministry — and pledges over its favorite policies, such as a national minimum wage and guaranteed pensions.

A deal between the Christian Democrats and Greens has never been tried at national level. Many on both sides would be deeply wary of such a partnership.

Conservatives in Merkel's in CDU — and particularly among its Bavarian sister party the CSU — dislike the Greens' pacifist roots and calls for higher taxes for redistributing wealth. When the two sides teamed up to run the Hamburg state government in 2008-2010, it was not a success.

However, progressive Christian Democrats do find common ground with the Greens on the environment and Merkel's decision in 2011 to phase out Germany's nuclear power program won her friends in the ecologist camp.

The entry into government of either the Social Democrats or Greens may add flexibility to Germany's European policies. Both parties have criticized the level of austerity imposed on southern European countries and have talked of the need for greater stimulus to rekindle growth in the euro zone.

"Any of these two possible coalitions should be good news for Europe because it will give the German approach a bit more of a pro-European flavor,” said Carsten Brzeski, senior economist at ING bank. “It should also bring about a bit more investment in the euro zone. Once the uncertainty has gone, it should be positive."

But although Germany may put more emphasis on pro-growth initiatives, it’s unlikely to make a major shift.

Merkel will remain very much in charge, buoyed by voters’ backing for her approach.

Over the past four years, she has provided enough German support to EU bailouts and European Central Bank intervention to prevent a euro zone collapse. But she’s insisted on rigorous budget discipline in the indebted peripheral countries and refused to commit taxpayers' money “euro-bonds” and other projects that would share out national debt burdens or set up a Marshall Plan-style public spending program.

Karel Lannoo, chief executive officer of the think-tank Center for European Policy Studies, welcomes the prospect of even slightly less austerity. "It will be a slight change, but now that she has to reign with another party, it is better for Europe,” he said. “Otherwise there would have been the arrogance of power. Now she has to soften her position."

Even with the FDP’s particularly vocal austerity hawks out of the picture, the new government will face opposition from within Merkel's own party, the CSU and the conservative German Central Bank to any fiscal weakening in southern Europe.

It will be reinforced by the fortunes of the euro-sceptic Alternative for Germany Party (AfD), which scored unexpectedly well on Sunday. Formed a mere six months ago to campaign for a breakup of the euro zone, the party won 4.7 percent, a whisker away from the 5 percent threshold needed to gain entry into parliament.

Although polls suggest many AfD voters had registered as a protest against the mainstream parties rather to support its anti-euro agenda, the vote appeared to mark the emergence of a new force that may do even better in next year's European Parliament election.

Elsewhere in Europe, most expect continuity in German policy.

Markets were relieved over Merkel's victory. Those hoping for radical change in southern Europe's fortunes were less pleased.

"This is a very bad result for Europe," said Marisa Matias, a member of the European Parliament from Portugal's Left Bloc party. "This means austerity goes on."

Regardless of the varying opinions, Merkel's reelection should focus minds in Europe.

The run-up to the election saw key euro zone decisions put on hold, including how to proceed with a so-called European banking union to enforce joint supervision and common rules for rescuing or winding down shaky financial institutions.

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In France, President Francois Hollande now knows he's not going to have a socialist soulmate in Berlin's Federal Chancellory and can concentrate on building a closer partnership with Merkel.

And Prime Minster David Cameron knows whom he must convince in his quest to transfer powers back from European Union headquarters to national capitals.

Merkel's views may also prove decisive for selecting key EU officials when current terms expire next year.

In Brussels, there’s hope that the woman who has often expressed support for closer European unity as a guarantee of peace, freedom and prosperity on the continent could take a stronger leadership role in defining a long-term vision for the EU as it seeks to emerge from the economic crisis. 

http://www.globalpost.com/dispatch/news/regions/europe/germany/130923/germany-elections-merkel-cdu-coalition-euro