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September 26, 2017

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The day after

When people are shocked, they often express their anger with delay. We have a sense that this may happen in Germany, too. The CDU in particular is in shock, not so much in Berlin but in the regions. The numbers are absolutely awful as Handelsblatt points out. The CDU has lost 1.6m voters from 12.4m previously. The CSU lost 400,000 from a previous 2.9m in Bavaria. And this happened despite an increase in turnout. The CDU’s analysis is that the problem has been the non-voters (same as with Brexit and Trump). There are those who oppose Merkel and voted AfD; and those who oppose Merkel but still want a centrist policy, who went to the FDP.

In his FT column, Wolfgang Munchau predicted that Germany will turn increasingly inward for a number of years. You could see the beginning of that yesterday. Angela Merkel is in denial. As Günter Bannas reports in FAZ, Merkel told the CDU’s leadership yesterday she has no intention of spending much time analysing the results. She just wants to get on with the job of governing. She also confirmed that she wants to stay in office for a full four years.

There were reports, later denied, that the CSU was considering leaving the joint parliamentary group. The SPD pushed out its parliamentary leader to make way for Andrea Nahles, the current labour minister - another top-down decision by the party’s high command. The AfD saw its first split after the elections, when Frauke Petry decided to quit the parliamentary faction to sit as an independent in the Bundestag. She may take a few followers along, and build her own group. We don’t think she will be very effective from now on. She has been politically sidelined. Remember Bernd Lucke, the economics professor who founded the AfD? He, too, mistakenly thought there would be a political life after his resignation from the AfD, but that did not turn out to be the case. Parties matter.

The coalition negotiations will not start until after the state elections in Lower Saxony on October 15. We expect that the CDU/CSU, FDP, and Greens, will ultimately end up in a coalition. And, yes, the talks will be difficult as there are substantive differences between the parties on a large number of issues. 

Christian Lindner, FDP chief, decided to lead his party in the Bundestag, which is the most powerful position from which to exert influence as he will not be bound by cabinet discipline. It is not clear that the FDP will demand the job of finance minister, as FAZ reports. This makes sense to us because there are so many trade-offs to be negotiated. In any case, the real power is shifting from the government to the parliament, so that the position of finance minister may not be so strong in the future as it has been in the past. The FDP in particular is afraid of repeating the same mistake it made during the 2009-2013 coalition, when it promised tax cuts that it could not deliver.

But the CDU is also no longer insisting on Wolfgang Schäuble as finance minister either. There was a lot of talk yesterday about Schäuble as chairman of the parliament - the idea is to use his authority to keep the AfD in check.

The FDP remains in hard opposition to any proposals for transfers at the eurozone level, but it is not fundamentally opposed to a cosmetic eurozone agenda, such as the elevation of the eurogroup chief to the position of finance minister with the task to oversee budget implementation at the national level. There are also many CDU/CSU MPs who support a hard line on the eurozone, which is why we are not sure that Germany will be able to engage with Emmanuel Macron in a meaningful way. France and Germany will end up agreeing something, but nothing that will address the many issues underlying the eurozone’s fundamental imbalances.

And finally we noted an interesting interpretation of the German elections from Yanis Varoufakis (@YanisVaroufakis), who tweeted: 

"In 2015 Merkel & Gabriel crushed the Greek Spring together, while practising socialism for bankers. Are they surprised now with the results?"

We think this is true of the SPD, but not really in respect of Merkel. There was frustration about bank bailouts, but also the bailout of Greece has driven voters to the AfD.

Our other stories

We also have stories on Macron's eurozone speech today; on the French budget; on how Italy intends to meet the deficit limit; on the revolution that bail-in-able bank capital will bring; and on why Brexit is a binary choice, and how this is not understood in the Labour Party.

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