September 25, 2017
Where does this leave eurozone governance reform?
It will be interesting to see how Emmanuel Macron’s eurozone agenda interacts with the German coalition talks. Christian Lindner, the FDP leader, already announced last night that a rejection of Macron’s eurozone budget will be a red line for the FDP. And the party would only accept a European finance minister in the form of a glorified head of the eurogroup, with more powers to interfere in national fiscal policy. The price Merkel will pay for a Jamaica coalition will be a de facto rejection of the Macron agenda for the eurozone, or a decision to water it down to insignificance. A Jamaica coalition is in no way an easier constellation than a straight-forward CDU/CSU - FDP coalition would have been. The relatively pro-Europeann position of the Greens is not going to be a counter-balance to the FDP's euroscepticism. A conservative position on eurozone governance is what the FDP is all about. This is what they campaigned on.
For the eurozone, the only positive election outcome would have been the one that briefly appeared possible earlier in the year: a red-red-green coalition. Last night‘s results show how far away we are from this scenario. The three parties together, which would always have been able to form a government between themselves until now, only managed to get less than 40% of the vote.
Our expectation is that Merkel will cling to office, and that the CDU/CSU will become increasingly restless. The Greens will focus on policies to reduce greenhouse gas emissions, which will be bad for Germany's car industry. And the FDP will try to wreck the eurozone. A pro-European alliance between CDU moderates, the SPD, and the Greens, will not be able to assert itself in the Bundestag, for political reasons.
And the AfD will "hunt" the government.