German Policy Watch


September 23, 2013

Pyrrhic victory for Angela Merkel

  • Chancellor Merkel’s conservative party secured a clear victory, finishing just 4 seats short of an absolute majority. As her junior partner, the FDP (Liberal Democrats), failed to clear the 5% hurdle for entering parliament, the CDU/ CSU has to look for a new coalition partner. The SPD gained slightly while the Greens dropped to 8.4%. The Left Party, with 8.6%, will become the third strongest party faction in the Bundestag.
  • The next few days will see the party bodies analyzing this surprising election outcome and deciding on political posturing and exploratory talks on coalition building. This process might appear confusing to outside observers and markets but is a normal procedure in a country that has been ruled by coalitions almost all of the time. The CDU might approach both the Green Party and the SPD but a grand coalition has a higher likelihood than an eco-conservative government.
  • The euro-sceptic AfD (newly formed “Alternative for Germany”) failed to enter the Bundestag but its good showing can be seen as a warning to the established parties to improve communication on euro crisis management. The material impact on the next government’s policy course in Europe will remain limited, though. The future of this single-issue party is an open question as the euro topic is not debated at state level and euro crisis management might no longer be an issue four years down the road. However, ahead of the EP elections where the AfD will probably enjoy a strong showing, Merkel might not afford to be too progressive on European issues.
  • Building a coalition will be tough as the CDU/CSU will be loath to give concessions – but potential coalition partners who have a theoretical outside option will demand high concessions. However, neither a minority government nor new elections are realistic alternatives.
  • A grand coalition might adopt a slightly more pro-active approach towards euro politics but the principle of fiscal support in return for reform commitments will remain and debt mutualisation is not in the cards in the nearer term. In domestic policy there are some sticking points between the CDU and the SPD, above all tax and labour policies, but they are unlikely to be a real obstacle to forming a joint government.


The federal elections yielded a surprising result. For the first time since 1994, the CDU/ CSU in a landslide victory secured more than 40% of the vote, 41.5% to be precise. The conservatives are now almost back to their long-term average of 43%. They fell short of the absolute majority in the Bundestag by just 4 seats. This is a huge personal victory for Chancellor Merkel, as well as confirmation of her cautious centrist policy course in domestic affairs and the balanced approach to euro crisis management. Of course, the CDU/ CSU will be in a predominant position in any upcoming coalition.

However, her coalition partner, the FDP, failed to clear the 5% hurdle to remain in parliament – the first time ever for the Liberals. They lost almost 10 percentage points of the vote, are five ppts below their long-term average and will have a hard time to recover outside parliament, not least because they are only represented in one state government as well. There is a risk that the FDP will radicalize in opposition which could curtail Merkel’s room for manouevre, especially on European issues. Obviously, the new election law under which tactical splitting between the first vote – for the candidate -  and the second vote – for the party does not make sense any more, was a clear disadvantage for the FDP which used to play the role of “kingmaker” in most post-war election terms in Germany.

The SPD gained slightly (2.6% to 25.7%) but fell short of their ambitions. This is the second worst result out of 18 since 1948. The party could not regain a substantial share of voters who once swept out of office Gerhard Schröder. This is a harsh result. Similarly for the Greens who garnered just 8.4% of the vote, whereas the polls saw them clearly above 10%. This poor showing will put them even behind the Left party (8.6%) which has become the third strongest fraction in the Bundestag.  The Left Party scored almost two and a half ppts better than on average.

The euro sceptical AfD (“Alternative for Germany”) showed a strong performance given the fact that it was only founded in April this year. However, the party only won 4.7% and will thus stay outside the federal parliament. The analysis showed that the party benefited from voter migration from the FDP, followed by a group of leftist voters. This should make it more difficult for the AfD to establish itself as a market-liberal force beyond the single issue of euro scepticism. They will most probably have a good showing in the elections to the European Parliament in May 2014 but it remains an open question whether they can establish themselves as a decisive political force in the next few years. Their impact on Merkel’s euro policy course which was confirmed by her landslide victory will remain limited. The AfD’s good performance, however, serves as a warning signal to the established parties to present their case on Europe and the euro more clearly.

The weeks ahead

Forming a new coalition government in Germany follows established patterns but the process might appear confusing to outside observers. The back-and-forth of inter- and intra-party consultations and negotiations are normal and no reason for concern. Also, forming a coalition can take time as coalition negotiations focus not only on details of the policy course but also on the distribution of portfolios and have to be approved by the respective party conventions. While the new parliament has to hold its constitutive session 30 days after the elections, i.e. Oct 30 at the latest, there is no legally defined period for coming up with a coalition agreement.

The party bodies will convene today to discuss the election outcome. The SPD had already scheduled a small party convention for September 27 which could endorse a mandate for the party leaders under Peer Steinbrück to enter into coalition negotiations. Despite the strength of the CDU/ CSU these talks will not be easy and could well become lengthy. Back in 2005 it took 65 days until Ms. Merkel’s election as chancellor, which this time around would push the formation of a new government well into November. A formal SPD party convention,  scheduled for Nov 14-16 (no dates available for the CDU), could approve the coalition treaty, making Nov 15 or 18 possible dates for Ms. Merkel’s re-election as chancellor. Both parties would wish to have a detailed coalition agreement clearly outlining the new government’s political agenda, in particular in domestic policy. While a grand coalition topped the wish list of the electorate, the bases of the CDU/ CSU and the SPD are not happy about entering into a grand coalition once again, and it is an open question whether the remake of a grand coalition will prove as stable as the 2005-2009 edition.

Sticking points in coalition negotiations concentrated on domestic issues …

Election manifestos provide only little guidance for the final policy agenda that coalition partners agree on and lay down in a coalition agreement. Domestic policy issues will play a more predominant role in the negotiations as the parties differ more on these topics:

  • As regards tax policy, the SPD wants to raise marginal income tax, capital gains tax and introduce a wealth tax whereas the CDU/ CSU had promised some tax relief, although subject to the budget situation. The CDU might have to compromise on parts of its plans.
  • The SPD envisages the implementation of a statutory minimum wage of EUR 8.50 while the CDU/ CSU want to leave this responsibility to the partners in collective wage negotiations, to be addressed in sector-specific wage settlements.
  • In terms of fiscal policy there should be sufficient leeway for additional public investment in infrastructure and education without endangering the German debt brake which kicks in in 2016.
  • Managing the Energiewende: both parties adhere to the general goal of exiting nuclear power but the details on means and instruments are open. The crucial question will be how to balance the cost of the energy turnaround between industry and private households.

…whereas a consensus will likely be reached on euro politics

The implications for German euro politics are very limited, as we have frequently stated. There will be no substantial change to the conditioned support course vis-à-vis the euro area periphery. A grand coalition might adopt a slightly more pro-active stance on growth initiatives and institution building though any evidence of that will only come after the EP elections. A push for a debt redemption fund is not in the cards, given not least the guidelines laid down by the German Constitutional Court.

The bottom-line so far: In the weeks to come, do not lose sight of the underlying process amidst the political fog. While coalition talks will not be easy, there should be no real obstacles to forming a grand coalition in due time. A minority government or new elections are no realistic options.




Authors :
Barbara Böttcher +49 69 910 31787,
Klaus Deutsch +49 30 3407 3682,




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