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.

What are the next steps towards forming a coalition in Germany?

As we noted in this morning’s press summary the back and forth over different coalitions and their terms has begun in Germany. So far however all comments are likely strategic and no serious movement is to be expected in the next days. SPD chairman Sigmar Gabriel already stressed that the process will take "weeks and months".   

There are four key stages which have to take place in the negotiations and the likely timeline for them to be concluded is at least two months. It could well be longer if any of them is delayed since there is no official time limit.

Four stages

(1) ‘Sondierung’ (Informal talks between parties to establish whether there is enough consensus to start official coalition negotiations)
(2) Coalition negotiations
(3) Sign coalition contract
(4) Vote for Chancellor and launch of government

Preliminary schedule

27 September
SPD ‘small’ party convention (comprising SPD leadership + 200 members)
→ will decide whether party leadership gets green light to begin informal talks with CDU/CSU over a Grand coalition (Stage 1)

Early to Mid-October
‘Small’ party convention will reconvene
→ If the informal talks prove productive (stage 1) the party leadership will ask the small convention to give approval for the beginning of official negotiations (stage 2)
→ might defer this decision to the ‘big’ party conference (this would delay the schedule and could mean stage 2 does not begin until mid-November)

14-16 November
SPD ‘big’ party conference
→ If stage 1 & 2 successful, will decide whether coalition agreement will be adopted and thus give way to stage 3
→ Will also provide opportunity to decide issues such as party leadership positions & future ministerial positions

25 November
Bundestag will reconvene
→ Vote for next Chancellor and formal launch of new government

Clearly then, the minimum time for a Grand coalition to be formed and finalised is likely to be around two months. This could of course be different for a coalition with the Greens, although we would imagine not markedly so.

As focus shifts to German coalition negotiations, who are the key players to watch?

After a surprisingly manic election night the focus in Germany now shifts to the tricky task of forming a government. As we noted yesterday, many options remain possible. Merkel looks unlikely to gain a majority on her own while the FDP and AfD are certainly out of the Bundestag.

This leaves a Grand Coalition, a CDU/CSU and Greens coalition or (as a very, very longshot) some form of SPD-Greens-Die Linke (Red-Red-Green) coalition or alliance which could still mathematically have a majority.

Little progress is expected before the end of the week, with the SPD holding a small party conference on Friday where it will determine its strategy for the negotiations. SPD Chancellor Candidate Peer Steinbrück has already said that the “ball is now in Merkel’s court”, suggesting he expects her to propose the terms of any Grand Coalition. Meanwhile, Greens leader Jürgen Trittin has said that, while open to negotiations over a coalition with Merkel, the chances of finding an agreement are “extremely limited”.

Who are the key players in the formation of the new government?

Angela Merkel (Chancellor – CDU/CSU): As Chancellor in her third term, Merkel will remain the key power player. Her slow and incremental approach will continue and set the tone for the whole government. Her term will be dominated by questions over her successor – for which there are few candidates. Rumours already abound that she may leave before the end of her term. She will need to identify and groom a successor, however, whether this will erode her own power base remains to be seen. Remains a key ally for Cameron and the key person he needs to convince for his reform agenda.

Wolfgang Schäuble (Finance Minister – CDU/CSU): Likely to remain Finance Minister, strong supporter of Merkel’s incremental approach to the eurozone crisis.

Peer Steinbrück (SPD Chancellor Candidate): Likely to lead the coalition negotiations for the SPD (although this could still change), but won’t take up any ministerial post in a grand coalition. Could well pay the price for the party’s poor electoral showing. 

Sigmar Gabriel (SPD Chairman): Likely to be Vice-Chancellor and take up ministerial post (either labour or defence) under a grand coalition. However, given the bad overall score for the SPD, the existing internal pressure on Gabriel might reach a tipping-point and leave him empty-handed. 

Frank-Walter Steinmeier (Leader of the Opposition in the Bundestag – SPD): Likely to become Foreign Minister under a grand coalition as in he was in 2005 - 2009. Had a reputation for undermining some of Merkel’s foreign policy goals in the previous coalition. Often seen as a Francophile and has previously suggested he believes the UK will leave the EU. Could hamper UK reform effort, although that said, much of the power on European decisions now lies in the Kanzleramt and Finance Ministry. Furthermore, the shift from current incumbent, Guido Westerwelle, may not be huge.

Thomas Oppermann (SPD): Likely to become Interior Minister given his expertise in this field.

Greens leadership: After the Greens slipped to 8.4% (compared to 10.7% in previous elections), a lot of internal movement is going on. The party’s Chief Whip, Volcker Beck, has already announced his resignation while the double party chairmanship, Claudia Roth and Cem Özdemir, offered their resignation this morning.

Both lead candidates, Katrin Göring-Eckar and Jürgen Trittin, seem to be dedicated to stay even though internal party pressure is increasing on the latter. Finally, the leader of the Green parliamentary group, Renate Künast, would need to be considered among the key players in a potential coalition with the CDU/CSU. What ministerial posts they could or would push for is unclear, but one would assume environmental and energy related posts would be top of the list

Open Europe predictions for the German election

Despite presenting a ubiquitous front on our blog, our team does often have varying views on the issues we cover. As on twitter, there has been a debate going on within the office about the ins and outs of the German elections - everything from "Veggie Day" to whether the anti-euro AfD will make it into the Bundestag. And, of course, what type of coalition will be formed.

We all agree it will be a close run thing. But below we lay out each of our analysts predictions. Feel free to stick your own in the comments! (Click to enlarge)

Interestingly, it's five to four thinking the AfD will just fall short of the threshold, reflecting what we agree can be a case of AfD being underestimated in the polls. But six to three in terms of backing for a 'Grand Coalition' - which, in aggregate, must be considered a bit of a revision in favour of a grand coalition from what we laid out in our pre-election briefing. There's also one rogue analyst predicting FDP won't get in at all...

German election update: Would the SPD rather stay in opposition than become Merkel's "lackeys" again?

Given that August is traditionally been a slow news month, we thought we'd revive an old Open Europe tradition - German poll Fridays (we know you're excited!). Its worth remembering we are only 6 weeks away from elections in Germany which will to a large extent determine developments in the eurozone and in the push for EU reform. So where are we at? Well the polls have been remarkably stable for the past few months with minimal fluctuations:

Source: Forsa (other polls display a similar trend)

While the result above would deliver a small majority for Angela Merkel's current conservative/liberal coalition, a couple of percentage points could deprive them of that. However, an alternative coalition of SDP/Greens would also be unlikely to have sufficient seats to govern, and a potential Rot-Rot-Grün (SPD-Greens-Linke) coalition has been ruled out by both sides as unappealing and unworkable.

Here's another consideration: what if the CDU/CSU/FDP coalition wins but ends up with a very narrow majority, meaning the government may not be able to pass contentious eurozone related legislation without support from the opposition due to rebels in its own ranks?

Both these factors increase the likelihood of another CDU/CSU and SPD 'grand coalition', like under Merkel's first Chancellorship between 2005 and 2009.  Although that government - in which the SPD's current Chancellor Peer Steinbrück served as Finance Minister - is credited with successfully navigating through the initial economic crisis, the SDP's poll ratings have never recovered, while Merkel's CDU has gone from strength to strength.

As a result, Steinbrück has ruled out another grand coalition, claiming that:

"The SPD's inclination to enter into a Grand Coalition is pretty much zero. Why should we once again be Merkel’s lackeys?"

Of course the fact that Steinbrück himself would not serve under Merkel again does not preclude a grand coalition with someone else from the party serving as Merkel's deputy. However, antipathy to this idea is widespread throughout the SPD, due to fears it would be unable to implement many of its policies and sink even lower in the polls (although ironically the party has also accused Merkel of stealing all its best policies for the CDU).

This is hardly a story of unrequited love - the CDU/CSU are also not keen on the idea, believing that such a coalition would be unstable as the SPD would be waiting for the appropriate time to bring down the government with the votes of the other left-wing parties before calling new elections, with Merkel unlikely to stand a fourth time, and with other credible CDU 'spitzenkandidaten' thin on the ground.

Either way, if the polls remain stable over the next few weeks and are an accurate reflection of the final results, we could be in for some interesting coalition talks.

As usual, we recommend you follow us on Twitter @OpenEurope, @pswidlicki, @NinaDSchick and @matsJpersson for all the updates from Berlin over the coming weeks.

Could Berlusconi's trials put the Italian government at risk? Not immediately, but...

The news didn't exactly go unnoticed in the media across Europe, but just in case: Italy's former Prime Minister Silvio Berlusconi has been sentenced to seven years in prison and a lifetime ban from holding public office in the well-known 'Ruby trial'. The usual caveats apply:

• The sentence is not immediately effective, because Berlusconi has the right to two further appeals. Given that it took 26 months to get to yesterday's ruling, the trial will not be concluded anytime soon;

• Berlusconi will turn 77 in September, meaning that he is unlikely to serve any time in prison anyway because of his age.

Clearly, the big question is what impact Berlusconi's trials could have on the stability of Italy's coalition government - whose survival depends on support from his PdL party. The short answer is: no-one knows.

So far, Berlusconi has consistently stressed that these are two separate issues, and his "loyal support" for Prime Minister Enrico Letta will not be affected by the outcome of his trials. However, caution is needed for one very simple reason. Berlusconi may be playing the responsible statesman right now, but this is in part because none of the rulings against him are definitive, yet.

Remember Berlusconi is facing several different trials at the moment. One of them (the Mediaset trial, where he is accused of tax fraud) is drawing to a conclusion, with the final verdict from Italy's Supreme Court expected by the end of the year, or in early 2014 at the latest.

If the Supreme Court were to upheld the previous two rulings, Berlusconi would face a four-year prison sentence and a five-year public office ban - which would virtually mark the end of his political career. At that point, the consequences for the Italian government would really be unpredictable. A key member of Berlusconi's party, Senator Maurizio Gasparri, even suggested that, if the former Italian Prime Minister were issued with a definitive public office ban, all his MPs and Senators could resign en bloc.

Berlusconi will meet Prime Minister Letta this evening. In theory, the meeting should focus on this week's EU summit - but the ruling will almost inevitably be discussed as well. We will keep you posted about any interesting developments via Twitter @OpenEurope.