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November 22, 2017

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When events intrude

Events seem to be intruding in German politics. SPD MPs are questioning the wisdom of the decision taken by Martin Schulz and the SPD's leadership on Monday to rule out another grand coalition.

There is a lot of excitement among German commentators about the possibility of an SPD U-turn. The majority of commentators are in a state of mourning at the prospect that their favourite option - a Merkel administration sustained by the Greens - is no longer on the table. We have heard one intriguing option, as relayed by Majid Sattar, according to which the SPD could offer to take part in a grand coalition, but only on condition that Angela Merkel agrees a serious engagement with Emmanuel Macron over eurozone reforms. We would like that to be true as well, as it would be the most enlightened outcome of the political gridlock, but we don't see this happening because other issues intrude.

Yesterday, the SPD group in the Bundestag met and a number of speakers expressed dissatisfaction with Schulz' uncompromising position. We think it is highly unlikely the SPD's executive committee will go from a position of unanimity against a grand coalition to a unanimous vote in favour. But they may still be open to other forms of co-operation in the short-run. What has spooked the backbenchers is the latest poll, by Spiegel Online, which has the SPD down from 20.5% at the election to 19.5% now. The CDU/CSU is down from 32.9% to 29.2%. Bot the FDP and the Greens are up, and in the case of the FDP this is contrary to what people had been predicting. The poll has an error margin of 2.5%, and was conducted after the breakdown of the Jamaica coalition talks.

If new elections were to produce this result, a grand coalition might no longer be numerically possible because it would no longer have a majority of votes.     

So, how can Schulz wiggle out of his problem? What will he say to President Frank-Walter Steinmeier, who will press him to change the SPD's position at their scheduled meeting tomorrow?

Schulz can hang tough, and force the SPD to mount a challenge to him at the party's annual conference December 7-9. Currently, he is the only candidate for the job of SPD chairman. Alternatively, he could at least engage in a dialogue - simply out of respect for the office of the president.

The latter is an option we consider likely - but we don't expect that this will end in an another grand coalition. The SPD could say that it would support a Merkel-led minority government for one year, for example. Since there is no doubt that Merkel will be elected chancellor in the final round of voting by the Bundestag, the president has the right to nominate her as the chancellor of a minority government if he wants to. The question is: does Merkel want it? And, under what conditions? Would she be dependent on the AfD for support? The AfD is also the main argument against another grand coalition. If the SPD entered another grand coalition, the AfD would be the main opposition party in the Bundestag. Each option comes with a huge cost for somebody.

Also consider the obstacles any grand coalition talks would face in view of the position CDU and CSU have built up during the Jamaica coalition talks. There is no way the SPD can be bullied into accepting a formal ceiling for refugees. The CSU would have to let go of this one. Would Horst Seehofer agree? Would he survive if he did? Maybe SPD, CDU, and Greens, can form a coalition without the CSU? The SPD may propose this in the full knowledge that the CDU would not accept it. Schulz can then claim that he gave his best, but that the talks failed because of the CDU and CSU.

Another variant we are hearing is a grand coalition over four years where Merkel agrees to stand down after two, making way for an SPD chancellor. That's an option Schulz would go for, but we see no way that the CDU would allow that to happen. From the perspective of the CDU leadership, new elections might be better.

So there are a ton of theoretical options, but none that makes political sense for everyone involved. We have not yet heard of a single option in which a stable government, led by Merkel, could emerge from this confusing and volatile process. So we still think that new election will happen - perhaps a little later than we thought on Monday because Steinmeier may force a few more iterations until we get to the final and formal point of impasse. 

The fundamental problem in German politics is that both the SPD and the FDP mistrust Merkel because of past experience. And there can be no coalition without either of them.

Our other stories

We also have stories on whether Benoît Coeuré has accidentally announced the end date of QE; on how to attract banks to Paris; on Juncker's criticism of austerity; on the Greek parliament's approval of the Christmas handout; and on whether the Netherlands could go the same way as the UK.

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