Merkel’s Coalition might collapse within a year

 

 

One of the most extraordinary yet underreported stories from the German press this week was a comment made by Franz Munterfering, the SPD deputy chancellor in Angela Merkel’s cabinet (yes, he is the locust guy!). He said in an interview with Berliner Zeitung that he could easily imagine a coalition with the Liberals and the Greens. It is the first time that a senior SPD official (he is in fact the second most senior Social Democrat) has threatened to walk out of the Grand Coalition. I loved the way he put it. He said it took Willy Brandt two bottles of wine to end the previous Grand Coalition in 1969, and that he would have no trouble finding two bottles now.

 

Does this statement mean that the SPD is about to walk out of the coalition, perhaps this week? No, but it is a first warning shot. It is not clear whether the SPD manages to form a coalition with the Greens and the Liberals. The Greens will probably go for it. For the liberal FDP, which has a relatively strong conservative and libertarian party base, it would not be easy to enter into such a coalition and to achieve a respectable election result in 2009, the scheduled date for the next elections. Then again, there are other equally ominous risks for the FDP in tying itself too closely to the CDU, and for remaining in opposition for too long. The CDU, meanwhile, is also in talks with the Greens and the FDP but I fear the Greens are not yet ready to sleep with the enemy. They still remember Angela Merkel as a pro-nuclear environment minister in the Helmut Kohl era. She was in favour of the US-led war against Iraq, and she gets on famously well with George W. Bush. She even invited him to dinner at her house. Ohmygod.

 

From the SPD’s tactical point of view, it is imperative that they topple Merkel at some point during the current parliamentary term. If this Grand Coalition were to go on until the bitter end, Kurt Beck, the SPD leader, would stand no chance to win the 2009 elections. Merkel will enjoy the full electoral bonus that is usually attached to an incumbent chancellor, while Beck will share the blame for the government’s mistakes. Merkel is quite popular, in fact more popular than Beck. Beck would be crazy to wait until 2009, and to challenge Merkel then. He needs to grab the office of chancellor before, or wait until 2013.

 

The reason is the electoral arithmetic for the SPD. Let’s recall the 2005 elections. A few months before polling day, the SPD scored as little as 26% in the opinion polls. A strong campaign by Gerhard Schroder, and some mistakes by Merkel, gave the SPD a still respectable 35% on polling day. Without Schroder, the SPD is very likely to drop below 30%, while the CDU is very likely to rise to above 40%. This would imply a tectonic shift of power towards the centre-right.

 

The SPD is thus desperate to get back into the driving seat before the next elections. This means they will offer their prospective coalition partners a deal that they might not be able to refuse. In particular, the Liberals may find it easier to get what they want (foreign minister, finance minister, economics minister, tax cuts, some deregulation) under a Social Democratic chancellor than under Ms Merkel. This is especially so since Mr Beck has been the only Social Democrat in recent memory who successfully led a coalition with the FDP in his home state of Rhineland Palatinate. Now, I don’t want to bore you any more with the ins and outs of German coalition politics. Suffice it to know, that there are powerful internal dynamics that may persuade the SPD to break this coalition prematurely.

 

What also helps this process is the lack of a common agenda within the Grand Coalition. It started off with a few worthwhile projects – a gradual increase in the pension age to 67, and most importantly, a fiscal consolidation. But some of the more recent “reforms” have turned out to be much less sensible. The health care reform, which Merkel wanted to be the centrepiece of her domestic programme, was watered down so much that it will invariably need to be reformed again during the next parliamentary term no matter who is in power. The reform of the corporate tax system, recently agreed, is in fact bad fiscal policy, as it includes massive tax cuts for companies during good economic times, and creates all sorts of distortions in the tax system. This and a row over the minimum wage currently dominate the news headlines. For the remaining two and a half years, there is no big reform project in the pipeline. This means the Grand Coalition has run out of things to do. In other words, this is perfect time to pick a fight.

 

Merkel has already told some of her closest allies that she is not sure whether the SPD will stick it out to the end.  This could mean that Beck will be the next chancellor. Alternatively, it might lead to early elections. My guess is that the eclipse will occur at some point between the autumn of this year and the autumn of 2008. Expect no more reforms out of Germany at least until 2009, and much coalition warfare instead.

 

 

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