After the deal, what lies ahead for Germany and Europe?

Martin Schulz campaigning in 2017. Photo: SDP Saar via FlickrMartin Schulz campaigning in 2017. Photo: SDP Saar via Flickr

It took five months, the failure of a “Jamaica” coalition and the threat of new elections, but, as of earlier this month, Germany finally has a government. However, the announcement that Angela Merkel’s CDU (as well as the CSU, its Bavarian sister party) have reached yet another coalition agreement with the social-democratic SPD seems to have started more fires than it has extinguished. Or has it?

After September’s election, German politics seemed to come to a standstill. The CDU, despite coming first, had lost 8 points, receiving its worst share of the vote since 1949. Martin Schulz’s SPD, which in March seemed like it might at last overthrow Merkel, also? suffered its worst post-war result, scraping barely 20% of the vote. The far-right Alternative for Germany (AfD), proved an unlikely winner, obtaining over 12% of the vote, 94 MPs and becoming the first far-right party to enter the Bundestag since the Second World War. Martin Schulz’s immediate announcement that he refused to enter into coalition talks with the CDU left a very bleak scene for German politics: the only alternatives, it seemed, were an unlikely three-way “Jamaica” coalition with the Green party, the FDP liberals and the CDU or an even unlikelier minority government led by Merkel, something unheard of in post-war Germany.

Six months later, the tables have turned. The SPD will join the CDU for the third ‘Grand Coalition’ since 2005, provided its membership approves it, an increasingly likely outcome but still not one to be taken for granted. Martin Schulz has been forced to resign and the AfD will, against all odds, be leading the (unofficial) parliamentary opposition. Merkel, in the meantime, will govern Germany for another four years, having once again not only survived a political crisis, but done so exceptionally well, asserting herself as the only viable candidate to lead her party. Rumour has it that she will only govern for two more years, handing over power before the next general election, but this is far from a foregone conclusion. Following this coalition deal, the chancellor has the opportunity to set the terms of her own departure, which she has already started doing. Despite a recent fall in popularity, the German electorate likes Merkel, her party is unlikely to overthrow her and the possibility of a left-wing government in Germany is very hard to envisage.

The deal itself: winners and losers

What changes does this agreement introduce? Four areas stand out, the first of which is the power balance within the cabinet; the SPD, in a decision which has angered a wing of Merkel’s party, has gained three frontline ministries (Finance, Foreign Affairs and Labour) as well as retaining Justice and Education, giving the party far more influence within the government. Regarding the economy, the agreement envisages a €46bn investment in social welfare, including education, housing, infrastructure and family care. A strong emphasis, however, has been placed on balancing the books, and so acquiring no new debts. Interestingly, the agreement gradually abolishes the so-called ‘solidarity tax’, introduced following the reunification and which granted former GDR states substantial tax relief In terms of immigration, the agreement sets a limit to the influx of (non-labour) migration, which is not to exceed 200,000 per year. Furthermore, it increases the amount of money available to regions which took in immigrants in 2015, aiming for a deeper integration of said immigrants both within their communities and in public life.

The great winner of the agreement will undoubtedly be Europe. The end of the 2013 cabinet marks the end of Wolfgang Schäuble’s tenure in the Finance ministry, which was the subject of heavy criticism throughout the Eurozone crisis. Although the resignation of Schulz, a former European Parliament president and one of the country’s most ardent Europhiles, is a big loss for the European cause, the likely nomination of Olaf Scholz as Finance minister, as well as the Social Democratic control of the Foreign Affairs ministry, point towards a far less fiscally conservative cabinet. Akin to Emmanuel Macron’s government, Merkel’s fourth cabinet strives towards parliamentary reform, with the particular aim of making the Eurozone more democratic, the imposition of a minimum corporate tax rate across the Union (which is likely to lead to a strong clash with quasi-tax havens such as Ireland and Luxembourg) and a more general move towards greater integration, possibly under the two-speed Europe model. The ghosts of the far-right, moreover, which received their first great blow following Le Pen’s defeat, seem far less of a threat than they did a year ago; Europe, for better or for worse, is facing substantial reform, and will do so at increasing speed following this coalition agreement.

The future of the SPD

For the SPD, the coalition deal leaves a divided party with an uncertain future. Like many social-democratic parties in Europe, it is increasingly finding itself in no-man’s land, with an undefined ideology, no clear future strategy and a decreasing appeal among the electorate. A substantial proportion of its membership, most notably its youth wing, opposes both the deal and the party’s leadership; ‘selling’ oneself to another grand coalition, they argue, could signal the end of an SPD which already paid a very heavy price for its involvement in the last Merkel government. The better choice, they argue, would have been to lead the opposition, allowing the party to rebuild itself and to prepare to take over the government in 2021.

Yet what choice the party really had seems debatable. In a country in which the possibility of a three-way left-wing government, made up of the Greens, the Left and the SPD, seems close to impossible in the near future, the choice which had to be made was between joining a third grand coalition or forcing a second election. The blame the SPD would have incurred for triggering new elections, as well as the likely increase in vote the AfD, greatly benefiting from the seeming failure of the ‘Establishment’, could have had disastrous consequences for a party whose voter base has already decreased considerably. Furthermore, claim the advocates of the coalition deal, the agreement leaves the SPD in a stronger position than in 2013, with three key ministries and a real possibility of shaping government policy, something which will be far easier to sell to the electorate in 2021 than merely having led the opposition.

What lies ahead for the party is unclear, with the image of the SPD as a party moving to the centre being called into question. Andrea Nahles, the new (and first female) party leader, and a former head of the SPD Youth, is generally identified with the party’s left, and is widely expected to attempt to reconnect with the SPD’s base rather than focusing on swaying moderates in the wider electorate. The party’s performance in regional politics throughout the next few years (as well as that of the rest of the left) will also play a decisive role not only in shaping the composition of the Bundesrat, the German Senate, but in laying out the course the party is to lead in the run-up to 2021.

As for the AfD, the electoral agreement is a heavy blow to a party which has underperformed in its first few months in the Bundestag and which would have possibly benefitted from a second election. Having secured 12% of the vote in September, it is unanimously opposed both by the rest of the chamber and wider German society. Its MPs are strongly scrutinised and criticised, and it is likely to find its leadership of the opposition, which it will share with the FDP, the Greens and the Left, to be much less of a magical mystery tour than expected. On almost every issue, the remaining five parties, regardless of their respective positions, agree to disagree with the AfD, wihich lacks the drive, the expertise and the numbers to not only shape German policy, but to shift the Parliament to the right.

Four more years?

Where, then, does this leave Germany? Is this merely four more years of Merkel being Merkel? This seems unlikely for several reasons. The starting position of Germany’s new government is very different to that of 2013. The comparative position of the three different parties making up the government is more equal. The SPD has not only gained important ministries, but important policy victories and the opportunity to visibly shape domestic and foreign policy in a way it was unable to do in the last Parliament. Even in relation to the Bundestag, the executive stands in a different position. As Wolfgang Münchau writes in the Financial Times, the coalition only controls 56% of Parliament: in 2013, the number was 70%. In a way, this will force both parties to be more assertive: in Merkel’s case, to avoid her party giving away too much power within the coalition, and in that of the SPD, to prevent yet another electoral apocalypse in 2021.

The presence of the AfD, as discussed above, is not as ominous as it seems; the party struggles to perform well in the chamber, lacking experience, good speakers and concrete policy proposals, and faces a Parliament united against it. It will be forced to institutionalize itself in a way that may play against its electoral tactic of “us” against “them”, so alienating some of its voters. For the Greens and the Liberals, this coalition may have saved them from the electoral oblivion a “Jamaica” coalition with the Conservatives could have led to – it is important to remember that, following the 2009-2013 membership of Merkel’s cabinet, the Liberals did not even make the 5% of votes necessary to enter Parliament.

Europe, it seems, welcomes the agreement. And it should. The grand coalition is not the best scenario for any of the parties involved, and is, as is every Merkel cabinet, founded on an undefined and centrist ideological basis. Yet, even assuming that to be the case (which, as discussed above, is to be doubted), this may not necessarily be a bad scenario in these volatile times. In a country and a continent in which the left lacks the electoral force to lead a government, and in which the only alternative is a shift to the far right such as the one seen only recently in Austria, a seemingly unexciting grand coalition may not be the worst of options. It is, undoubtedly the best available starting point from which to tackle, both throughout this Parliament and in the long run, the socioeconomic reforms both Germany and Europe urgently need.