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First reactions to German vote
In this Macro Flash Note, GianLuigi Mandruzzato looks at the results of the German elections. There are two main takeaways. The first is that the tail risk of a leftist coalition has dissipated making only coalitions encompassing parties from both sides of the aisle a viable path. The second is that the Greens and the FDP, the two would-be junior partners, will be the joint kingmakers of the next Chancellor.
The centre-left SPD became the largest party in the German general elections held on 26 September but gained a smaller-than-expected margin over the centre-right CDU/CSU, according to the preliminary results (see chart 1). Compared to the 2017 elections, the SPD gained more than 5 percentage points in the popular vote, benefiting from the popularity of its Chancellor candidate, Olaf Scholz, current Vice-chancellor and Finance Minister of the incumbent government coalition led by Angela Merkel. In contrast, the CDU/CSU recorded their worst ever result, losing almost 9 percentage points in the popular vote.
Chart 1. % of popular vote
Five other parties will be in the new Bundestag, a new record. The Greens gained about 6 percentage points, a good result but less than predicted by the polls. The liberal FDP also gained, although less than one percentage point.
Together with the CDU/CSU, the losers in the elections are the populist parties at the two extremes of the German political scene: the far-right AfD, which lost 2.3 percentage points, and the far-left Die Linke, which lost 4.3 percentage points.1 Finally, the South Schleswig Voters’ Association (SSW) won one seat.
Chart 2. Seats in the Bundestag
Chart 3. Alternative coalitions: total seats
Mr. Scholz is the favourite to succeed Merkel, but the CDU/CSU candidate Armin Laschet has a chance. Eventually, who will be the next Chancellor depends on the coalition that will support the next government. Several alternatives are theoretically possible, but in practice only the SPD-Greens-FDP, or traffic light coalition, or the CDU/CSU-Greens-FDP, or Jamaica coalition, are viable (see Chart 2).
This is because neither the SPD nor the CDU/CSU want to enter a new Grand Coalition, Grosse Koalition, or an enlarged version of it, after having governed together for 12 of the last 16 years. Furthermore, the poor results of the Greens and Die Linke rule out a SPD-Green-Linke coalition, erasing the risk that German potential growth rate will be hampered by increased regulation, taxation and unwinding of previous structural reforms that boosted German competitiveness.
This constellation makes the Greens and the FDP, the two would-be junior partners, the joint kingmakers of the next coalition. Interestingly, members of both parties were quick to announce that they will talk to each other before the formal start of negotiations with the would-be senior partners in the coalition. This shows the Greens and FDP are willing to iron out their differences and find common ground, which would make any future government coalition more cohesive.
It also means that policies under either a traffic light or a Jamaica coalition will not differ much, if at all. The emphasis will be on green and infrastructure investment, digitalisation, and greater, albeit possibly moderately so, European integration.2
In any case, it will take several weeks before the new government is sworn in. Entering a three-way coalition requires that all the parties involved move out of their comfort zones and make concessions to their potential partners. The compromise reached during high-level negotiations will then have to be approved by the parties’ members, which will lengthen the process of government formation. In the meantime, Angela Merkel will remain Chancellor as leader of a caretaker government.
1 Having fallen below the 5% threshold, Die Linke entered the Bundestag only because it won at least three seats under the first-past-the post system that it used to elect half of the Bundestag members.
2 See EFG Infocus: German politics after Merkel http://go.pardot.com/e/931253/rman-politics-after-Merkel-pdf/69sw/3752704?h=2s55FmnVauuPOLkkVR6siOfdxKfXaejk9O_xY-o56mk