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Friday, October 18, 2013

Like its election, Germany's coalition talks will be dominated by domestic issues

Coalition, coalition, coalition – this is all par for the course in German politics. It’s been almost a month since the BTW13, and the new government has yet to be formed. This is no cause for alarm, of course, Germans like their coalitions, and they understand that they take time to form.

With the Greens now out of talks, Angela Merkel’s CDU/CSU has to try and form a Grand Coalition with the SPD (the most popular choice for government among the public.) The parties  held third-round talks in Berlin yesterday, finally agreeing to enter formal Grand Coalition negotiations. Talks will start next week, subject to approval by an SPD party convention on Sunday.

Merkel's priorities are clear. On Wednesday she laid out her agenda for government as she starts her third-term as Chancellor. They are: ending the eurozone crisis; cutting the costs of Germany’s energiewende (or its move from nuclear to renewable power); dealing with the problem of its ageing population and federal reform of the states.

Although the eurozone crisis is Merkel’s top priority, as we have been arguing for quite some time now, regardless of coalition outcome, the German approach to the eurozone will not change significantly: expect more of the same. The SPD influence may cause some change in style, but not substance. It is unlikely that eurozone policy will feature as the key headline during coalition negotiations.

From a domestic perspective, the focus on demographic challenges is interesting. As we have noted, this is a huge deal for Germany, with its population set to shrink significantly over the coming decades and the pension burden set to jump accordingly. How this is dealt with will play a role in determining for how long Germany retains its current status as the powerhouse of Europe. This is a question that will worry SPD and CDU alike.

Equally important, will be the cost of  Germany's energiewende. A recent report by the FT estimates that that German consumers will have spent over €100bn on subsiding green energy by 2014. The pressure to reform Germany's renewable energy law to lower costs will run across party lines.

Given this, the domestic issues that are bound to dominate coalition talks will be the question of introducing a minimum wage, taxation and spending. Here, the SPD will fight hard for a 'victory'. The party knows that it lost a lot of support the last time it entered into a Grand Coalition with a significantly more powerful CDU/CSU in 2005. And this time around, Merkel’s party is even stronger (it is just a few seats shy of an absolute majority in the Bundestag). Not surprising, that reports emerging from Germany say that the SPD is fighting hard to win the Finance and Labour Ministries over the less-influential Foreign Ministry, (although, this was denied by SPD general secretary Andrea Nahles this morning.)

Although it is unlikely that the CDU/CSU will hand over the Finance Ministry, it will be willing to compromise elsewhere, giving the SPD the 'prize' it is looking for. This could be a compromise on mimumum wage. But it is important to distinguish here (and this is a detail that has not been grasped by some English reports on this issue), that BOTH the CDU/CSU and the SPD are in favour of a minimum wage.The question, then, is what the rate and scope of the wage should be. The SPD favour a statutory (national) minimum wage of €8.50/hr, while the CDU/CSU wants to allow trade unions and employers to negotiate the level individually in each German Bundesland, or state.

As already indicated by CDU-leader Horst Seehofer, he would be inclined to accept the SPD's €8.50 demand under ‘certain conditions’. The caveat being that the SPD demand is OK if it doesn’t cost jobs - given that Germany is already facing some labour shortages this is plausible. Presumably, however, this means that the SPD will have make concessions on other domestic fronts – such as agreeing not to raise taxes further (one of the SPD’s key campaigning platforms) and no further creation of debt. (Like the CDU/CSU, the SPD believes in cleaning-up budgets, but it favours a less-strict austerity schedule.)

So, while the SPD is likely to win the domestic victory it is looking for – it  will not be a huge blow to Merkel’s CDU/CSU, which will be sure to win concessions elsewhere.Compromise in coalition are all part of the course in German politics.

From a wider European angle, however, the coalition talks will be broadly reminiscent of the campaign: domestic issues will supersede.


Rik said...

Start from a strategic pov.

It is anyway likely to be an unstable coalition. So all parties have to bear in mind that the thing could fall apart at any time and prepare for that.
Not like the former FDP/CDU one.

SPD will likely try to use its monopolistic position to get a good deal.
From there it simply looks in CDUs best interest (assuming the above) to let this fail and get a new election providing the blame for that in the swing electorate's eyes, can be put in SPDs corner.
As the polls are now the most likely outcome in such case is either a CDU outright majority or a similar situation as now with as added feature AfD in Parliament.
The third possible outcome would be the combined left having a somewhat larger majority. Looks however simply a) not very likely and b) would not change much anyway as Die Linke are a no go area.

A situation with a lot of upside for the CDU and very little or no downside.
Outright majority is much better for the CDU.
And similar as now situation with AfD as well. Not as good as an outright majority but still pretty decent and better than what the CDU has now.
AfD gives Merkel an alternative Which is probably completely acceptable for the potential CDU electorate. Very unlikely that CDU voters would run away because of that (similar btw with the Tories and Ukip). Anyway it acts like a counter weight and makes a left coalition totally impossible.
It simply makes the Grand Coalition again the by far most likely outcome but with pressure on the system from a for Merkel benificial side.

I would always as CDU negotiate with this as fall back position and simply assume that the negotiation can fail (and subsequently things have to look like SPD messed that up).

Probably some of the peanutbrains like Seehofer will mess that up again but that is another issue.

From a policy pov.
Merkel is mainly focussing on keeping the fall out of the EZ crisis as limited as possible for Germany. This is a bit different of what OE mentiones.
And she wants no big steps as she cannot oversee those. A keep the risks low approach. Doubtful she will get away with that btw, the present situation is unsustainable longer term and doesnot look in anyway to solve itself.

Simply looks like Merkel (and the SPD) for opportunistic political reasons are reversing all the good work done earlier mainly under Schroder. All sorts of long term considerable cost increases have been started (like the energywende) and new ones will likely be started.

On minimumwage OE seems to miss part of the picture. Minimumwage laws are (very) long term stuff.
The fact that now there is a labourshortage (see btw below) hardly means that it makes sense because the short term fall out is marginal.
-Lateron especially if the competitiveness of Germany gets worse because of Merkel's measures, aging and luck (as they have the right economy for now) runs out it can and likley will become an issue.
-Effects of minimum wages are nearly always longer and medium term simply because jobs can not be cancelled, outsourced or reorganised away easily from one day to the next. Who knows how Germany's economy will look then, but minimum wage would still be in place.
-The part of the Laboutmarket where minimumwages play doesnot have a shortage of supply. That part like in the UK is simply very dysfunctional (again like in the UK). High unemployment while a lot of workers are still kicked out of normal jobs simply because they are qualitywise total crap.
There are much larger problems there than minimum wages. With as basic problem as said (like in the UK and anywhere else in Western Europe) that the bottom 20% or so of the labourmarket simply is not fit for purpose. A huge structural problem that minimumwages only will make worse.

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