No excitement, but progress

In Germany, the SPD party conference yesterday voted to initiate formal government negotiations with the CDU/CSU. The talks could begin immediately and be concluded within weeks. The result then has to be confirmed by the SPD membership in a referendum, allowing for a new government to take office before easter.

 

However, the party-conference vote underlined the deep split within the SPD about continuing as junior partner in a grand coalition (GroKo) under Chancellor Merkel’s leadership. Only 362 of the 642 delegates supported GroKo, and many in the SPD have demanded improvements to the exploratory agreement with CDU/CSU. Party leader, Martin Schulz, has promised to extract further concessions, but CDU/CSU has so far dismissed any major changes to the 28-page document. Markets seem encouraged by the prospects of a continuation of the status quo.

 

The exploratory agreement is quite focused on European issues, lending support in principle to the French President Macron’s European vision. The new coalition would support the introduction of a European-wide minimum wage and is willing to increase the German contribution to the EU budget. The attention to the EU is partly a reflection of Schulz’s past as President of the European Parliament, a recognition of the need for a new European dynamic after Brexit – and is perhaps also a result of the two parties not having a lot of ambitions on the domestic agenda.

 

SDP and CDU/CSU entered the negotiations with distinctly different election platforms, but have cancelled each other’s demands out along the way, thus ending with small adjustments to the current course, primarily adjustments to welfare programs (particularly healthcare and pensions), small tax cuts and some tightening of family reunifications for refugees.

 

The split within the SPD indicates that the next 3.5 years of governing are going to be much tougher than the quite harmonious past four years. The support for the SPD in federal elections has been cut in half since 2002 and the party had expected a period in opposition to shape a new, coherent message – and to (hopefully) witness the broad Jamaica-coalition descend into chaos. Instead, the call of duty brought SPD back to the negotiating table. First with a vague proposal of support to a CDU/CSU government, which was quickly rejected by Merkel. Now with a formal mandate to form a government. The SPD youth organization has been leading the rebellion against the party leadership and is likely to keep up the pressure, even while in government.

 

Beyond Merkel

In September, Martin Schulz was responsible for the worst SPD-result since WWII. However, the result was dismal for the CDU/CSU as well, and the last four months have dented the image of “Merkel the Eternal”. This is most likely Merkel’s last period as chancellor, and CDU should work on establishing a line of succession. Most likely, neither party is going to fight the next election under the current leadership. If both governing parties undertake generational transformations, the probability of achieving anything major diminishes further. Even lasting the full period could be a struggle.

 

The establishment of yet another GroKo might preserve stability, but it is not the best outcome for Germany in the longer run. The combined share of the extreme left and right now exceeds 20% of the votes, which means that forming coalitions at the federal level along the traditional lines of SPD-Greens and CDU/CSU-Liberals is becoming increasingly difficult. Four of the last five federal governments have been grand coalitions, and while this was good during time of crisis (2005-2009 and 2009-2013), it is not a recipe for innovative thinking. SPD and CDU/CSU only reached a combined 54% in September’s election; a full 14 percentage points less than in 2013. Catch-all parties no longer catch all, and grand coalitions no longer satisfies anyone.