Germany: Coalition options after Sunday’s vote

All major polls predict Chancellor Angela Merkel’s conservatives to come in first, but the question is what coalition is likely to come after Sunday’s vote.

Pre-election polls give her centre-right Union bloc a lead of 13 to 17 points over the centre-left Social Democrats of her challenger, Martin Schulz.

The status quo, though, will depend to a certain extent on how Merkel’s centre-right CDU/CSU bloc fares compared with her incumbent junior coalition partner, the Social Democrats (SPD), as Reuters notes

Polls show four parties competing for third place, with support between 7 and 12 percent: the Free Democrats, who look set to return to parliament after a four-year absence; the Greens, the Left Party and the far-right Alternative for Germany (AfD). So, they  could potentially hold the balance

In this case, according to analysts, a few percentage points will decide Merkel’s coalition options and her policy agenda for the next four years — with consequences for Berlin’s stance on eurozone integration, tax cuts, state spending and the privatization of state assets.

“It’s all about politics next week — and that means German politics,” told Reuters Andrew Bosomworth, a senior portfolio manager at Pimco, one of the world’s largest bond funds.

The base scenario is that Merkel will win the election and remain chancellor for a fourth term. “The big question is with which of the other parties she will team up,” Bosomworth said.

Coalition building will be complicated by the fact that the anti-immigration AfD and the socially liberal FDP are forecast this year to easily pass the five percent threshold to enter the Bundestag lower house of parliament after failing in 2013.

“Black-yellow or Jamaica coalition”

This means that traditional two-party alliances — such as a “black-yellow” coalition between Merkel’s conservatives and the FDP or a “red-green” coalition between the centre-left SPD and the Greens — are likely to fall short of a stable majority.

The most likely scenarios are therefore another “grand coalition” between Merkel’s bloc and the SPD — usually, a last resort combination — or a three-way alliance untested at a national level between the conservatives, the FDP and the Greens — dubbed the “Jamaica coalition” due to the parties’ colours.

Both options would broadly mean a continuation of CDU/CSU’s economic policies, including closer cooperation within the eurozone, sealing more free trade deals and granting minor tax cuts.

“If Merkel’s conservatives win as expected, the market reaction is likely to be calm. A Merkel victory is basically priced in,” Bosomworth said.

However, last year’s elections in the United States and Britain showed that pollsters can get it badly wrong. There is also a chance that the conservatives and the FDP could get just enough votes to form a black-yellow coalition.

Regardless of the uncertainty surrounding Merkel’s future coalition partner or partners, investors are banking on the pastor’s daughter to remain at the helm of Europe’s biggest economy, according to Reuters news agency.

“Merkel is an extraordinary personality,” Buffett told business daily Handelsblatt. “Germany and the world, from my point of view, need a leadership personality like Angela.”

 

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