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SITUATION UPDATE 15 September, 2021 Back

Situation Update - Germany Federal Election

Konrad Pialucha

Summary

  • Germany’s electorate is slated to take to the polls on 26 September, with Angela Merkel due to step down as chancellor

  • Recent weeks have seen the centre-left SPD experience a rapid rise in support over the conservative CDU/CSU

  • Domestically, an SPD-led coalition would signal a trajectory of fiscal frugality in tandem with realising centre-left policy objectives

  • At the EU level, Merkel’s departure will work to boost France’s position within the bloc

  • An SPD-led government would align with US ambitions to regulate the global economy, though Nord Stream 2 will remain contentious

Situation

After 16 years of chancellorship Angela Merkel is due to step down as Germany’s premier, with the impending federal election being the first since 1949 in which the incumbent chancellor will be absent from the ballot. Germany’s electorate is slated to take to the polls on 26 September and will choose the lower house of the federal parliament, known as the Bundestag. At stake are a legal minimum of 598 seats whose occupants are elected to four-year terms via a mixed-member proportional representation system, with additional seats allocated through overhang mechanisms to ensure proportionality in the legislature. Due to Germany’s plural political environment, a guaranteed period of coalition building will follow the announcement of results on the night. The coalition party with the most seats will typically pick the chancellor, who subsequently must seek approval from the newly established parliament.

Recent weeks have witnessed the centre-left Social Democratic Party (SPD) experience a rapid rise in support over the conservative Christian Democratic Union and Christian Social Union (CDU/CSU) bloc. On 12 September, an opinion poll showed that the SPD now enjoys 26% support, while the CDU/CSU sit at 20% and the Greens are at 15%. Factors propagating the SPD’s rise include the political momentum of the party’s nominee for chancellor Olaf Scholz, who has leveraged his experience as vice chancellor and minister of finance to the end of imbuing his name with connotations of incumbency and natural successorship to Merkel.

Comparatively, the CDU/CSU’s nominee for chancellor Armin Laschet is perceived as less versed in federal governance, thereby stoking concerns regarding his suitability for office. Additionally, frictions within the CDU/CSU as to who should succeed Merkel have temporally undermined Laschet’s ability to build nationwide support, who’s candidacy was only confirmed in April of this year. By contrast, Scholz was unofficially nominated for chancellorship by the SPD in August 2020.

Several governmental arrangements could arise from the coalition formation process. As both the SPD and the CDU/CSU would prefer to avoid another coalition with each other, based on current polling statistics the SPD would have to form a coalition with the Greens and the liberal Free Democratic Party (FDP), or with the Greens together with the Left party, with either option to be led by Scholz. While a coalition with the Left party would be the most politically convenient for the SPD, the Left is fragmented and polling poorly, making the SPD-Green-FDP configuration more probable. Should the CDU/CSU upend polling trends and garner enough votes to displace the SPD, a coalition composed of the CDU/CSU, the Greens and the FDP led by Laschet would be the most plausible outcome. Accordingly, the Greens and the FDP are positioned to enjoy kingmaking status during the coalition formation process. Notably, the Greens ideologically lean towards the SPD while the FDP’s politics are more commensurate to that of the CDU/CSU.

 

Implications

Domestically, the most likely scenario of an SPD-led coalition with Scholz as chancellor would signal a trajectory of fiscal rectitude in tandem with attempting to realise policy objectives traditionally ascribed to the centre-left. Scholz has advocated for Germany to return to the constitutionally enshrined ‘debt brake’ in 2023, which restricts federal borrowing to 0.35% of economic output per year thereby imposing a strict limit on federal and state government spending. Confidence in the measure among Germans derives from the mechanism being heralded as a success as per the scale of the country’s fiscal response to the COVID-19 pandemic, with popular logic contending that it was afforded through debt brake induced frugality over the preceding years. Other areas likely to become domestic priorities of an SPD-led coalition include increasing the minimum wage from 9.60 EUR to 12.00 EUR, building more houses to push down the price of rent and more robust climate protections, whereby commitment to the latter could be emphasised by the SPD during the coalition formation process to ensure support from the Greens.

In regional terms, Merkel’s departure has significant effects on the EU. The turnover will work to boost France’s position within the bloc, whereby the new German chancellor will be equipped with far less pan-European political capital versus that which Merkel accrued over 16 years as premier. Considered together with how France is scheduled to take over the rotating presidency of the Council of the EU on 1 January 2022, the bloc’s political centre of gravity at the leadership level is poised to shift westwards to Paris. Merkel’s departure could also mark the beginning of quasi-hesitancy at the EU in the coming months. The reconfiguration of Germany’s leadership in addition to the impending French presidential election to be held on 10 April 2022 could create reluctance to make policy decisions in key areas such as security or finance until a moment of greater political certainty, akin to the intervening months between the French and German elections in 2017 that were characterised by a policy-making slowdown at the EU.

Framed transatlantically, an SPD-led government would signify German alignment with the global economic objectives of US President Joe Biden. Of pertinence is regulation, with both Scholz and Biden expressing a desire to impose a global minimum tax rate of 15% on multinational corporations. The notion has been agreed in principle in the G7 and G20 contexts, with realisation now falling into the realm of enforcement and creation of national obligations. Simultaneously, an SPD-led government will maintain or elevate the Nord Stream 2 subsea pipeline’s position as a point of contention between Berlin and Washington. Nord Steam 2 was announced as complete by Kremlin-run Gazprom on 10 September and will bring cheap Russian gas directly into the European market via Germany, thereby bypassing existing routes that allow Ukraine to collect 2 billion USD a year in gas transit fees. Among US leaders there is a cross-party consensus that this will provide Moscow with power to coerce Kiev, while Scholz has assured that the pipeline could be cut off “just like that” should Russia waive guarantees designed to address the geopolitical risks. An SPD-led government has the potential to accentuate the salience of the disagreement between Berlin and Washington amidst the SPD’s historically closer relations with Moscow compared with Germany’s conservative bloc.