Merkel again…most probably
According to historically very reliable exit polls (see picture above), Angela Merkel’s right-of-centre Christlich Demokratische Union Deutschlands/Christlich-Soziale Union in Bayern (CDU/CSU) has won a clear victory in Germany’s 24 September general election, making a fourth (and, possibly, final before retirement) term for her as Chancellor highly probable (the decision ultimately being for the lower house of Germany’s parliament, the Bundestag).
The return of nationalism?
However, although not quite the “disaster” that s ome in the press are claiming, the outcome will be a disappointment to her and her party, with a forecast (again based on exit polls) of just 32.9% of the total vote, down by around 10pp from what was admittedly a stellar result in 2013. The most obvious cause of this slide is the strength of the vote for the nationalist/populist Alternative für Deutschland (AfD), forecast at just over 13%, widely reckoned to have been driven mainly by Mrs Merkel’s decision to allow large numbers of refugees from Syria to enter Germany in late 2015. This means not only that, for the first time in Germany’s post-war history, elected representatives regarded as right-wing are sitting in parliament but also that the AfD will be the third largest party in the Bundestag. The immediate outbreak of anti-AfD protests will, of course, do nothing to prevent this; although the AfD’s well-established propensity for internecine warfare may turn it into a less effective force in parliament than it could be based on this result.
Just as important in this regard is the (widely expected) decision of the party which came second, the Sozialdemokratische Partei Deutschlands (SPD) to eschew the option of another grand coalition and go into opposition. Although much of its attention will be internal as it looks to get over what is genuinely, in my view, a disastrous election outcome of less than 21% of the total vote with an eye to the (post-Merkel?) 2021 election, as the main opposition party it should overshadow the AfD in the incoming parliament.
We shall see how this pans out over the coming weeks and months. But I think it is worth keeping in mind that a showing of around 13% for a nationalist party in any other European country than Germany would not merit anything like the number of column inches (and anxiety) that this result is doing. Furthermore, consistent with a recent poll of AfD vot ers which suggests that there was a significant element of ‘protest vote’ playing a part here including that 55% of those who voted for it consider it to be “too right-wing”, this may well prove to be a one-off.
In the meantime…
Essentially, Mrs Merkel now has just one option if she is to form a stable government, ie an unprecedented (at the federal level) three-way coalition with the liberal (in the European sense of the word) Freie Demokratische Partei (FDP) and Die Grünen (the Greens), often referred to as the ‘Jamaica coalition’ based on the party colours of the three parties, consistent with the national flag of Jamaica.
Even by the general standards of German coalition building this is likely to take some time — some are predicting months — given the strong differences between the FDP and the Greens. But Mrs Merkel is an expert at compromise and triangulation of the sort which is clearly required to cobble a coalition together should not be beyond her.
Many of the necessary compromises will be on policy. The press is focusing in particular on the Greens’ ambition quickly to phase out coal-fired electricity generation in Germany, which is directly contrary to the FDP’s stance. Also on the environmental front, it will be interesting to see where the new government comes down on the diesel emissions scandal (in which, at the state level, the Greens have also been implicated). But perhaps of most immediate importance to investors is the fate of Germany’s fiscal surplus (forecast at around EUR16bn this year) which the FDP wants to hand back in totality to taxpayers whereas the Greens and the CDU/CSU both wish to invest at least a significant proportion in (much needed) infrastructure renewal, potentially boosting GDP growth somewhat more than handing money back to frugal German householders would.
Furthermore, French President Emmanuel Macron is due to present far-reaching proposals on EU/eurozone reform tomorrow (timing which is widely seen as aiming to influence Germany’s coalition negotiations), which will likely drive a deeper wedge between the FDP and the Greens.
Then there is the struggle for key cabinet posts. This may well revolve around the future of the finance ministry which is openly coveted by the FDP even though its leader, Christian Lindner, would not personally be a credible replacement for the veteran Wolfgang Schäuble (whom Mrs Merkel would dearly like to keep in his current office).
One way or the other, when the dust settles on yesterday’s ballot the outcome of the coalition negotiations will be much more important than headline-grabbing (for now) level of support for the AfD.