EXCLUSIVE: First translation of draft German Grand Coalition agreement

We have seen a first draft of the German coalition government agreement (the final agreement is expected tomorrow), courtesy of Green politician Malte Spitz who published the draft on his blog late yesterday evening.

The German media has begun delving into the document while the English speaking press continues to lag behind.

The document contains some key insights about how the new government will view Europe and conduct its EU policy, below we pick out the most important parts:

Overall vision of the EU
The agreement stresses that German must become an official working language of the EU alongside French and English – not entirely surprising given that it was a CDU/CSU electoral pledge, but it highlights that Germany is slowly becoming more comfortable with its role in Europe.

There is also a strong emphasis on “subsidiarity” and that the EU must only act where action on other levels is not sufficient. It also highlights that Germany is keen to deepen ties with Poland and maintain the “unique” Franco-German partnership. This may not mean much, but it definitely isn't a nod to David Cameron.

In terms of democratic legitimacy, the agreement calls for a "strong role" for the European Parliament and "close involvement" of national parliaments  in the decision making process. It also calls for a standard minimum threshold for the allocation of seats under European elections and a "single European suffrage" to add to stable majorities at the European Parliament. The final point here is the call for a "stringent and efficient" set of Commissioners - possibly a hint towards reducing the number of Commissioners and focusing them on policy areas rather than allowing one for each member.  

Eurozone crisis
The agreement contains few details on the new government’s approach to the banking union and specifically the resolution funds – given that this is known to be a part of the negotiations it is surprising nothing has been included, maybe a sign that an agreement has been hard to come by.

The document also contains a rare admission from Germany that the causes of the crisis are "varied" and extend well beyond fiscal profligacy. Specifically to "competitiveness", "imbalances" and "design defects" in the EMU which led to problems in the financial markets.

As for the way out of the crisis - as we predicted - much more of the same can be expected:

“[The eurozone must] combine structural reforms to increase competitiveness, and a strict, sustained continuation of budget consolidation for increased competitiveness with future investment in growth that combines employment in socially-balanced way.”

Again as we pointed out in our pre-election briefing, the widely mooted ‘Reform Contracts’ are likely to be a key tool in enforcing these changes. In particular, the contracts will be democratically grounded and enforceable (although the exact mechanism for this is still unclear):

“We are committed to ensuring that the euro countries agree on democratically- legitimised binding and enforceable contractual reform agreements on the European level. [These reform contracts] will be directed to achieving the goals of competitiveness, sound and sustainable finances, growth and employment.”

Any form of debt pooling is strictly ruled out, as we predicted in our pre-election briefing:

“The principle that each Member State is liable for its own obligations must be upheld. Any form of pooling of sovereign debt would jeopardise the necessary national policies in each Member State. National budget responsibility and supranational, joint liability are not compatible.”

The new coalition will not rule out further bailouts and will consider them but “only as a last resort” when the “stability of the eurozone as a whole is at risk”. Importantly, the agreement reiterates that any use of the ESM, the eurozone bailout fund, needs “approval of the Bundestag”.

The City of London may also have some grounds for concern, given that the document hints at more action on financial sector regulation, saying:

 “The financial markets must be involved in the costs of the crisis, and must be guided back to their function as serving the Real-economy.”

Remember, this is only a draft. Nonetheless, the agreement looks to be very much as expected – no change of course on the eurozone, some mention of limiting EU power but a continued commitment to the EU and Europe. The draft however, remains vague on some key details. With important negotiations coming up on the eurozone banking union as well as in terms of the future of the EU, the new German government will have to flesh out its position significantly.

AfD: The party of the youth?

AfD chief Bernd Lucke on the campaign trail

It's barely been half a year since the German anti-euro party Alternative für Deutschland (AfD) emerged onto  the political scene (and we were one of the first to flag up the then-unknown party), but its ascent has been rapid.

On Sunday's federal elections,  AfD managed to convince two million Germans to back it. With 4.7% of the final vote, the party just narrowly missed the 5% threshold to enter the Bundestag. Had AfD made it in, it would have had over 30 seats.

Age plays an interesting part in the AfD story. Had the elections been decided by younger voters, AfD would now be preparing to enter parliament. Lead by economist Bernd Lucke, the party won 6%  of  the overall share of votes from those aged between 18 to 24. It won the same amount from those aged between 25 - 44. Support for AfD drops to 5% in the 45-59 group, and to below 3% in the over-60's category.

The 60+ voters are the clear conservative stronghold in Germany, with over 50% of them voting to conserve the status quo with Angela Merkel's CDU/CSU. In short: the younger generations are more likely to vote for Germany's euro-rebels than the older ones. And there is a logic to this: the older voter is more likely to feel the weight of Germany's recent history, therefore, rejecting anything  they may perceive as 'anti-European.'


Now, the interesting dynamic in all this, is, of course, that AfD has been depicted by many commentators as the "Bourgeois protest party;" or as an old and boring "party of professors." But obviously something about it speaks to younger voters.

One of AfD's actual professors, Prof. Dr. Lothar Maier, argued last month he didn't agree with the 'boring AfD' image, saying:

"We have 20,000 members in Germany and there aren't so many professors in Germany. Our membership is coming from all stratas of the population."

Another interesting element to highlight is that AfD won enough votes to take it over the 5% barrier, in all but one of the eastern German states.

The AfD's candidate in Brandenburg, Alexander Gauland, thinks that this is because “people are not so strongly bound to parties in the east”, while another prominent AfD candidate, Konrad Adam, adds: "eastern Germans haven't got bad experiences with experiments." And indeed, if a new currency were introduced in Germany (the AfD argues against the euro), it could be easier for east Germans to stomach: it would be their fourth currency in 25 years.

So what side of the political spectrum does AfD gets its votes from?

Richard Hilmer from leading German pollser Infratest Dimap, explains that “AfD voters come from all political directions,” stressing that the "party of professors" actually received most support from workers. The graph below shows that AfD got its largest share of votes from the FDP and Die Linke, but also a sizeable part from the CDU/CSU and the SPD:

Commenting on his party's future on Phoenix TV, Lucke said: “We need to become more professional for the elections in 2014,  [during] this campaign we had to improvise a lot.”

But it looks like Lucke, (who is yet to decide whether or not he will run in the European elections in May 2014) may enjoy further success. Bear in mind that the threshold to enter the European Parliament is only 3%. In the last European elections in 2009, the CSU and Die Linke got about 2 million votes, resulting in 8 MEP seats. AfD has already shown that it can mobilise such numbers.

Moreover, EU-protest parties (such as UKIP, for example) tend to perform their strongest in European elections. And while this is not to gloss over the considerable differences between UKIP and AfD as parties, this should raise expectations for AfD's showing next year.

It may not have made it into the Bundestag, but we still may have a lot more to hear from AfD.

Germany's anti-euro party mobilises non-voters and FDP supporters

Three days ahead of the German election, Germany's anti-euro party, Alternative für Deutschland is polling at 5%, according to the latest INSA Poll.

If AfD actually wins 5% of the vote, it will enter the Bundestag. The poll  has caused a bit of a stir, as most commentators didn't think AfD would make it into parliament.

Now INSA head Hermann Binkert has broken down where the potential AfD voters come from for FAZ:

22% FDP

16% CDU

9% Linke

6% SPD

3% Greens

3% first-time voters

13% other parties

28% non-voters

- It's interesting that the largest share of the AfD vote comes from non-voters, so it has mobilised non-voters in a way that other parties have not been able to.

- The second largest share of the AfD vote comes from FDP supporters. The FDP haven't been doing too well in the polls (currently at 6%), so there is  the outside possibility that the AfD will make it into the Bundestag while the FDP won't.

Germany's anti euro party clashes with major pollster ahead of election

As we have noted in the past, it is possible that Germany’s anti-euro party, Alternative für Deutschland,  has a wider support base than polls suggest. 

Voters may still be embarrassed to admit support for AfD via telephone polling (popular in Germany), and because polls are weighted to include past vote recall, they are inherently biased in favour of the established parties.

Though polls usually put AfD  on about 2-3%, recent polls have put them as high as 4%: just one point short of the 5% threshold needed to enter the Bundestag.

And this issue has been stewing. Last month AfD leader Bernd Lucke claimed that employees of  the major German polling companies, Forsa and Allensbach,  had informed him that AfD was polling well above 5% in the pollsters' raw data, but that they were deliberately fudging AfD’s results.

Pretty sensational stuff if true.

But now the regional court in Cologne has slapped AfD on thewrist, ruling that it is not allowed to make such allegations against Forsa.

Forsa Chief Manfred Güllner (who has previously admitted that the AfD may do better than predicted by polls), called Lucke’s allegations “disgraceful,” adding that AfD hasn’t  “even come close to 5% -- let alone over.”

Güllner isn’t holding back his punches, saying of the Afd leader "I only call him liar Lucke...[he] is completely insane. We handle AfD just like every other party. What Mr Lucke is claming is utter rubbish, a complete conspiracy theory. None of our employees spoke to Mr Lucke, absolute nonsense.”

But with the federal election taking place in less than a week, we will soon know just how accurate the polls have been about AfD.

 

No fundamental change in eurozone policy after the German elections

Today we released an in-depth briefing on the German elections, and their implications on the eurozone. The top line: don’t expect any fundamental change in Germany’s eurozone policy after the elections.

Of the nine proposals being floated to pull the eurozone out of crisis, we expect clear movement in only one or two areas, including the most important but most unclear one: the proposal for a single eurozone resolution authority for banks.

Moreover, Germany is unlikely to depart from its emphasis on ‘sparkpolitik’ or austerity. Any change here will be largely superficial: a continuation of same policies wrapped up differently. This is based on Germany desire to ‘lead by example,’ and the broad support for austerity enjoyed among the German public.

The German insistence on structural reforms, and strong controls on taxation and spending of other eurozone states won’t change either. A government lead by Angela Merkel, could, however, push for a formalised “competitiveness pact” where by struggling eurozone countries commit to reforms  in return for aid.

The question of debt pooling will remain a contentious one  –  with the recent Open Europe/ Open Europe Berlin poll, conducted by YouGov Deutschland, showing that 64% of Germans are opposed to such a step. A debt redemption fund, as has been proposed by the influential Council of Economic Experts that advises the government, may be a possibility – however, this won’t be without opposition.

See our table below (click to enlarge) which breaks down and analyses the key eurozone policy areas on a party-by-party basis, detailing if we can expect to see movement after the elections:

Germany's anti-euro party may still yet make it into the Bundestag

Don’t think the German elections are a done deal – and, in particular, don’t rule out Germany’s anti-euro party, Alternative für Deutschland.

Though Merkel’s CDU/CSU is doing well the polls – as has been noted – her party could still flunk this one. German election surveys are notoriously  unreliable – and in the past, the polling figures for the CDU/CSU in particular, have tended to be higher than the actual election results. The central scenario for the new German government is still definitely a CDU/CSU-FDP coalition. However, a grand coalition of CDU/CSU-SPD is very much on the cards. If the FDP fails to get into the Bundestag, we could even be looking at a SPD-Green coalition – but that’s still unlikely.

The thing to remember is that the share needed to secure a majority in Bundestag isn’t the same as overall support in the polls, as the votes below the 5% threshold  parties need to win seats in the Bundestag will be dropped, while some seats are actually first past the post. So it’s not all that straightforward.

One interesting question, though: will Alternative für Deutschland shock Europe and make it into the Bundestag? A Forsa opinion poll for RTL/Stern today put the party on 4% .

This means we’re very close to a scenario where AfD is in and FDP is out. The assumption so far – including initially from us – was that AfD would struggle to get above 5%. Its window would instead be the European Parliament elections (without 5% threshold and possibly following a series of tough decisions in the Eurozone). However, we’re not confident of that any longer. Before the Italian elections, we predicted that Beppe Grillo’s (at least semi anti-euro) Five Star Movement would do better than many assumed. Deja Vu?

Possibly.

First, there are a huge number of swing voters swirling around Germany – over 30 per cent are undecided according to some polls, with one recent one even claiming 72 per cent. We literally have no idea where all these votes will go, but they could prove favourable for AfD. They could, of course, also go against the party.

Secondly, polls can easily underestimate the strength of  a new, protest party – as in the case of Grillo. Online polls tend to put AfD higher than polls conducted over the phone, suggesting that voters are still embarrassed to actually admit publicly, and to pollsters, that they'll vote AfD. German polls aren’t actually that great at predicting outcomes, for various reasons.

Now, AfD won’t do a Grillo  - who absolutely exploded onto the scene. However, a lot more sensational things have happened in politics than AfD landing a spot in the Bundestag.

We won’t call this one either way.

Criticise it all you want, Germany is not going to drop austerity

Writing on his Telegraph blog, Open Europe Director Mats Persson argues that anyone who prays for Germany to U-turn on its eurozone policy after the September election will probably be left sorely disappointed.

Read the full article below:

"Fuelled by an intensified wider debate about the merits or otherwise of austerity as a remedy to economic problems, the last few weeks have seen politicians, commentators and economists coming out in droves to criticise Germany’s austerity-for-cash approach to the eurozone crisis.

The new Italian Prime Minister Enrico Letta – who is today meeting his German counterpart, Angela Merkel – said yesterday that Italy “will die of fiscal consolidation alone”, leading some to conclude that Italy will lead the revolt against austerity in the Eurozone.

Everyone is now looking ahead to the German election in September, with the idea being that with election season gone and perhaps with a Conservative/Social Democrat "grand coalition" at the helm, Germany will flinch and drop the whole austerity thing.

Unlikely. We might see some easing of targets and toned down rhetoric, but no fundamental shift. The German consensus on austerity runs incredibly deep.

Although, strictly speaking, in Germany, austerity is actually not called austerity at all (it sounds “evil” as Angela Merkel has pointed out). Instead, the term used is sparkurs (savings course) or sparpolitik (savings politics). Or as a verb; Hausaufgaben machen – to do your homework. The opposite is schuldenpolitik (debt politics) or Schulden machen (to make debt).

Such semantics matter. Fundamentally, they illustrate that the perceived dichotomy between ‘austerity’ and ‘growth’ – which strikes a chord with some other electorates in Europe – is a non-starter in Germany. It would be electoral suicide for a German politician to advocate schuldenpolitik – akin to an American Presidential candidate professing himself an atheist or a Swedish politician denying climate change (the latter would most likely also involve being stripped of one’s Swedish passport). This logic drives politicians’ approach both at home and abroad.

By and large the main opposition party, the centre-left SPD, does not advocate a radical departure from Merkel’s blueprint. Instead, it merely nit-picks at the edges while garnishing the whole exercise with concerned rhetoric about the social consequences. A typical SPD critique is that expressed by Nils Schmidt, the leader of the Party in Baden-Württemberg: “We have to make cuts, but step-by-step, we can’t make them all at once.” The key there is “we have to make cuts”. And remember, in an effort to be seen as tough on irresponsible banks it was the SPD that was the most hawkish over Cyprus. Even the Green party is keen to be seen as fiscally responsible taking a tough line on paying down public debt.

German opinion polls have also consistently backed the austerity-for-cash approach abroad with a recent opinion poll showing that 65 per cent said they agreed with Merkel’s handling of the crisis – up from 46 per cent in July 2011.

In other words, even under a grand coalition between Merkel’s CDU/CSU and SPD, the basic course in Germany’s Europe policy will remain fairly steady. Crucially, the complicated sequencing for any further eurozone integration – such a resolution fund for banks or public debt pooling – will likely stay broadly the same: constitutionally-anchored eurozone-wide supervision first, cash later. This also means that Franco-German axis will continue to suffer from tensions.

There is, of course, an intense debate going on within Germany over the country’s position in Europe – and a worry about being seen as the neighbourhood bully. As I’ve argued previously, the crisis sees Germany’s two post-war pillars clashing head-on – firm commitments to both Europe and sound money.

Exactly how this debate will play out remains unclear. However, anyone – say a French socialist – who prays for Germany to U-turn on its eurozone policy after the September election will probably be left sorely disappointed."