In-depth analysis on Credit Writedowns Pro.

Merkel profile dominant in Germany but politics still in flux

Editor’s note: 23 Sep 2012: With the German election over, we are putting this outside the paywall.

The latest opinion polls in Germany show Angela Merkel at her most popular. But her governing coalition partner FDP will almost certainly miss the 5% hurdle in Germany’s general election, leaving the political landscape very uncertain.

Merkel, as a political figure, has gone from strength to strength, with her personal poll numbers consistently showing widespread popularity amongst the German electorate. This has puled her party up to its highest poll numbers since Merkel’s election as Chancellor in 2005. Right now, the CDU/CSU parties are polling at 42% for this year’s general election while the challenging SPD party is only polling at 25%. That puts Merkel in the best position to form a government after the election.

The problem for Merkel is that her FDP coalition partner’s standing in the electorate has plummeted in recent years. Right now, they are polling at a measly 2% – and will miss the 5% hurdle that throws them out of the German Bundestag in all likelihood. That means that the Chancellor cannot reach a 50% governing coalition majority with the present governing configuration of CDU, CSU and FDP if current polls were to hold.

There are three possibilities for the post-election German government make-up:

  1. The CDU could form another grand coalition with the SPD as they did in 2005 when Merkel was first Chancellor. I see this as the most likely alternative because the centre-right CDU party is not that far from the centre-left SPD party in term of ideology. In particular, the high number of women in Merkel’s cabinet has made family and social issues more important for the CDU, aligning it with the traditional pull of the SPD.
  2. The CDU could rebuff the SPD and go with the Green Party. The Greens are now considered a mainstream party in Germany after their having served in a governing coalition with the SPD under Gerhard Schroeder. Moreover, Merkel’s rejection of nuclear power has put her into a more Green-friendly light that makes this coalition at all possible despite previous contentions from the CDU/CSU parties that this coalition would never occur on a national level. The real obstacle here is the Bavarian CSU party which is the sister party of the national CDU party in Bavaria only. The CSU is more conservative than the CDU and may well balk at this governing coalition. Their preference is FDP first, SPD if necessary and Greens only as a last resort.
  3. If the CDU cannot form a coalition, the SPD could form one with the Greens and Die Linke. Right now polling says that a combination of the three left wing parties would put it over the 50% majority. But because the CDU has first crack at forming a government due to its huge polling lead, this coalition can never happen unless the CDU is unable to form a government. In the unlikely event this occurs, the left wing coalition would be an easy alternative as these parties are relatively well-aligned ideologically, die Linke being the most problematic. Die Linke are a left wing party that is not considered a mainstream party in Germany and their inclusion in a governing coalition could be a problem.

Conclusion: no matter how you slice it, Germany’s new governing coalition from 2013 forward will be more leftish than it is today. The FDP is likely out unless they can pull out a huge turnaround from their years of decline. I believe Merkel understands this and will be positioning herself to be able to govern with the SPD, and this means a leftward turn of German politics even before the elections occur.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.