The AfD bandwagon rolls on - what are the implications?

Germany's anti-euro AfD party has hit a rich vein of electoral form building on its success in Saxony two weeks ago (where it scored 9.7% and won its first seats in one of Germany's 16 regional parliaments) to win 12.2% in Brandenburg and 10.6% in Thuringia; a considerable improvement on pre-election polls.

As the graphic below shows, AfD won votes across the political spectrum, In net terms, its success came at the expense of the left - Die Linke in Brandenburg and the SPD in Thuringia - although in gross terms it also won a lot of votes from the CDU and FDP.

Where did the AfD's votes come from in Brandenburg and Thuringia?

This reflects the nature of the AfD campaign in these areas which combined an explicit pitch to Die Linke voters emphasising Ostalgie (nostalgia for East Germany), AfD's opposition to TTIP and to the sanctions on Russia with more traditional 'small c' conservative messages on crime and immigration (for example, AfD wants to re-impose border checks). On the whole, the question of Europe and the euro barely featured.

While AfD's recent successes should not be over-interpreted, inflated as they are by higher rates of disaffected voters in East Germany and low turnouts, it does nonetheless pose difficult questions for the established parties. This is particularly true for the CDU/CSU for whom, as we've noted, AfD is too big to ignore, yet too controversial to team up with. In the longer term however this might change if it becomes evident that the AfD is the only alternative to permanent 'grand coalitions' at the regional and federal level, a scenario which would arguably strengthen AfD even more.

We expect that this will be hot debate within the CDU in the coming months and years. Meanwhile, the AfD itself faces a big test; 12 months on from narrowly missed out on winning Bundestag seats the party has performed well in European and regional elections, however, with next year's Hamburg regional elections the only significant entry in the electoral calendar over the next year and a half, can the party sustain its recent momentum? If it stalls, could we see deeper splits between the economic liberals and protectionists/social conservatives who make up the party's uneasy internal coalition?

Free movement: Germany pushes the limits of EU law [updated]

How much are the new immigrants costing us asks Bild

The German government's preliminary report on EU migration was presented yesterday by Interior Minister Thomas de Maizière and Labour Minister Andrea Nahles, and contains some very interesting measures.

The explosive combination of EU migration and access to benefits has been giving David Cameron a headache for a while now, although as we’ve noted in our press summary and on our blog, similar debates have also been kicking off in Germany, Denmark, the Netherlands and elsewhere. In particular in Germany it has been rumbling for some time, with some mention of it during the election and the new coalition agreement, however this intervention is likely to step up the debate a notch or two.

The proposals actually have quite a lot in common with Cameron's position, although not exactly and each side goes further on certain specific issues. The key question remains though whether they will be judged to be consistent with EU law. This remains unclear and whether or not a challenge from the ECJ is forthcoming will certainly set a precedent in this area. 

Key proposals

Potentially the most important proposal in the draft report is that:

• Jobless EU migrants seeking work in Germany, who have no means of supporting themselves and have limited job opportunities, should be given a limited window to find a job before being required to leave.

Crucially, the report stresses that this can be achieved within the constraints of existing EU law as this would not apply to those EU jobseekers who have a 'reasonable' chance of being employed, those with sufficient financial means including affording their own health insurance, or even those who have a “mini-job” involving just a few hours of work per week. 

The report recommends that EU migrants who cannot fulfil these requirements would have a grace period before being expelled, and notes that the ECJ deems six months to be appropriate. However, whether such expulsions would work is not clear, since, in theory, EU migrants’ right to free movement would kick in immediately after they left Germany, allowing them to return right away again.

Other proposals in the paper include:

• Temporary re-entry bans on migrants abusing EU free movement (by forging documents or being in a fake marriage, for example).
• Linking child benefit payments to tax identification numbers.
• €200m in financial assistance to help local authorities to deal with migration (€140m would come out of the European Social Fund). 

How does this compare to Cameron's position?

There are some similarities between the German position as set out yesterday and Cameron's position as set out in his FT piece last year, but also some important differences.

On the question of kicking EU migrants out, Berlin is proposing to do so in cases where migrants do not have a job after six months, have no realistic prospects of finding one and are not financially self sufficient, while Cameron wrote that:

“If people are not here to work – if they are begging or sleeping rough – they will be removed. They will then be barred from re-entry for 12 months, unless they can prove they have a proper reason to be here, such as a job.”

This means that Cameron and Merkel have adopted a similar position on removing people who are not working, but London is going further on the specific question of the re-entry ban which would apply to everyone in that position, whereas the German re-entry ban would be limited to more serious cases such as fraud. 

On the question of child benefit, the German and UK positions differ. In the UK, Cameron, Clegg and Miliband all want to be able to stop paying child benefit to parents whose children do not live in the UK. The German position is different – the government currently has no plans to restrict child benefit for children not resident in Germany, the linking of the payments to tax ID numbers is designed to crack down on potential fraud and duplicate payments. 

Next steps

The preliminary report will be finalised by end of June before it enters the legislative process. How will the EU respond? The big question mark is if - despite what the report says - these proposals are compatible with EU law or if either the six-month cut off, or the re-entry ban could face a legal challenge.

Interestingly the report also has a section on “possible further measures on the European level” which notes that:

“Also in other [EU] member states…the issue is debated, in parts very controversially. In this respect the question arises….if and in how far considerations for further steps on the European level or together with European regulations are necessary and reasonable. The Committee will deliver an opinion on this in its final report.”

Meanwhile, there are two separate cases referred from German social courts to the ECJ to watch out for. They deal predominantly with the questions in how far EU jobseekers and EU migrants which are “economically inactive” can be generally excluded from receiving unemployment benefits in Germany. We will closely monitor the developments and keep you updated.

A few surprises as the new German cabinet takes form

Over the weekend, following the 'yes' vote among the SPD membership, the composition of the new German cabinet was announced – almost 3 months after the election.

Despite, the outcome being broadly known there were a couple of surprises. Below we analyse the key points and personalities.

Jörg Asmussen (left) leaves the ECB board to join the Labour Ministry
This is probably the biggest surprise and could have some knock-on effects. Asmussen has stressed that he has stepped down from the ECB Executive Board to become Deputy Labour Minister (definitely a step down) for purely personal reasons. However, speculation will certainly arise over whether playing the bridge between the ECB and the Bundesbank had taken its toll on him.

The immediate front runner for the post is Sabine Lautenschläger (right), vice-president of the Bundesbank, although her nomination is not guaranteed since it has to be approved by all ECB members and get a (non-binding) endorsement from the European Parliament. If she does take up the post it could create headaches for ECB President Mario Draghi with the Bundesbank well known for its hawkish approach and its (sometimes open) disdain for the current loose ECB monetary policy. It could also be the case that the CDU/CSU only consented to the SPD's Andrea Nahles - who had adopted an aggressively leftist position on the eurozone and German economy during the campaign - becoming the Social and Employment Minister on the condition that Asmussen would be there to push continued structural reforms.

First female defence minister – a successor emerging?
Another surprise was the appointment of Ursula von der Leyen as Defence Minister - the first time the post has been held by a woman. This remains a high profile and tricky position in Germany, with a significant international element. Von der Leyen has already been tipped as a potential successor to Merkel and this post could be the making, or breaking, of her. Either way, it shows Merkel accepts the need to cultivate potential successors, something she has previously avoided by side-lining the careers of those who have sought to take up the mantel. Von der Leyen is an outspoken supporter of European integration so it will be interesting to see if she pushes for more EU resource sharing and/or competence pooling in this area.

SPD Chairman grasps a double edged sword?
In addition to his role as Merkel's deputy, the SPD's Chairman Sigmar Gabriel will head up the newly created post of Economy and Energy Minister – hence his new “Superminister” moniker. This is clearly a high profile role, with Gabriel now in charge of the Energiewende – Germany’s shift away from nuclear and fossil fuels to renewable energy. It provides a great platform for him to launch a campaign for the Chancellery in 2017. That said, the move could also backfire. There are already rumblings in Germany about the cost of energy, a problem which will also increase with the shift to renewable energy. Furthermore, implementing the shift will present numerous problems and Gabriel could become the fall guy for any failures. As for the economy brief, the Finance Ministry has a strong hold over many economic matters and Gabriel could find his hands full with the energy brief.

Rebuilding the Franco-German axis?
As expected the SPD’s Frank-Walter Steinmeier returns as Foreign Minister, who we have noted before has a Francophile streak and has previously shown a willingness to disagree with Merkel. While his impact could be limited due to the Foreign Ministry being side-lined on EU and eurozone issues – now the domain of Merkel and Schäuble – Steinmeier could still work to rebuild the partnership with French President Francois Hollande.

Other notable points include the appointment of Peter Altmaier to head the Chancellery (i.e. become Chief of Staff to Merkel). He has a keen interest and knowledge of the EU, but as previous head of the German arm of the European Federalists, he could provide a further challenge to UK Prime Minister David Cameron’s push for EU reform. The outspoken Hans-Peter Friedrich has been moved from the Interior Ministry to Agriculture, a less high profile post after he took significant flak for his handling of the NSA spying issue. Viewed from London this is a regret as Friedrich took a hard line on the need to reform EU free movement rules to prevent abuse by so-called 'welfare tourism'.

Overall, the CDU holds five ministries, the CSU three and the SPD six. Much has been made in the negotiations about Merkel giving up too much power, but we’d be careful of underestimating her. Given her strong position it’s unlikely she would have given up more than is necessary, and she has maintained hold over the key ministries and the key points of the agenda. There has been some tinkering on the edges of labour policies and spending priorities, but the approach of cutting the deficit and bringing down debt remains vital. Her procedural step by step approach also remains.

One thing that is clear is that the SPD is heavily invested and supportive of this coalition and there can be no chance of them shirking their responsibility. Whether this will prove positive for them at the next election remains to be seen.

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.

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.

What's happening in Germany? An update on the coalition negotiations

Which way will Angela Merkel choose?

A quick update on the German coalition government negotiations.

There has been a lot of posturing over the past couple of weeks from all sides about the willingness to do a deal and what is needed to secure one. So far though, things have basically followed our expected timeline with end of November still looking to be the likely date for a final agreement.

A grand coalition still remains the most likely outcome but a CDU/CSU and Green coalition (Black-Green) has increased in likelihood. Below we lay out the key developments in each party’s position:

CDU/CSU:

• Despite being the runaway winner of last month's elections, it has taken a relatively back seat in the recent public discussions (behind closed doors it is obviously leading things).
• Has kept the door open to formal talks with both the SPD and Greens, ensuring that the former knows it has a “serious alternative”. That said, some within the party have expressed unease about a Black-Green coalition, with CSU Chief Horst Seehofer notably saying he “would not hold talks” with them.

SPD:

• Has begun to lay out its terms for joining a coalition, focusing on higher taxes on higher incomes and a national minimum wage. Has also made overtures about renewing its push for a financial transaction tax of some form, possibly linking this to the proposed eurozone bank resolution fund.
• The spokesman of SPD’s conservative wing, Johannes Kahrs, told Die Welt it is “non-negotiable” that “the SPD appoints the Finance Minister”, although speculation over this has now gone quiet and seems unlikely to happen given how keen the CDU/CSU is to hang onto this ministry.
• There is clearly some hesitancy within the SPD however, with many still scarred by the effects of the previous grand coalition in 2009. The party leadership has also promised that any coalition deal will need to be ratified by the full party membership – this adds uncertainty to the negotiations.

Greens:

• Much of the party leadership has stepped down meaning it is in somewhat of a transition phase, with senior politicians divided in terms of their eagerness to conduct negotiations with the CDU/CSU.
• The party would likely want similar agreements to the SPD on tax but also some assurances on support for renewable energy. However, given the change in leadership of the Greens and the shifts in the CDU/CSU’s energy policy, the two parties are now much closer on both of these issues.
• That said, there are plenty of areas of discord, one being immigration and asylum policy, which came to a head in the wake of the Lampedusa tragedy. Interior Minister Hans Pieter Friedrich (CSU) said earlier this week, “It cannot be the responsibility of Germany or the EU to accept all the people who are not as well of as the people here”, and went on to hit out at those immigrants who come to Germany allegedly to only access benefits. Joint leader of the Greens Katrin Göring-Eckardt hit back saying, "The rhetoric of allegedly excessive demands in view of the terrible Lampedusa catastrophe is something we cannot and will not accept”. Some have speculated that the row is in at least in part tactical, so as to provide cover in case the negotiations fail.

As for the timeline from here, the CDU/CSU will hold final informal talks with the SPD and Greens on Monday and Tuesday respectively and will decide at the end of next week who to enter into formal talks with. If it’s the SPD, as seems likely, the party leadership will seek approval from the 'small' party convention on the 20 October, after which formal talks will begin.

Meanwhile, it looks the SPD and Greens have ignored the siren calls of Die Linke to use the three parties' combined parliamentary majority to force through measures such as the minimum wage.

One final interesting point, is that these negotiations are starting to cause tremors in other countries with the Irish Independent running the front page headline this morning, “German parties battle over our corporation tax”. Clearly the lines between national and EU politics are becoming increasingly blurred in the eurozone.

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.

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.

German Elections: The European Reaction

Mixed Reaction in the Med

Spanish daily El Mundo runs with the headline “Merkel, Merkel über alles”, while an article in the paper argues that a Grand Coalition (composed of Merkel's CDU/CSU and the centre-left SPD) “would lead, to a certain extent, to a relaxation of the austerity Merkel imposes on Europe.”

Meanwhile, Spanish Foreign Minister José-Manuel García Margallo went even further with his hopes that new German government would relax the pace of austerity in the eurozone's Southern periphery, telling Cinco Dias that “Eurobonds will come.”  (We disagree with this assessment, read our German election briefing to find out why.)

An editorial in El Pais suggests that the result “validates [Merkel’s] European theses”. Les Echos agrees, arguing that it is “illusory” to expect a Grand Coalition to “fundamentally” shift Berlin’s approach to the eurozone.

In France Les Dernieres Nouvelles D'Alsace argues that the election outcome is "unlucky for France, whose voice does not count anymore, and will only be heard again when the French economy improves". Meanwhile, Le Figaro splashes a beaming Merkel on its front page with the headline, "The Triumph of Merkel," pointing out that a victory like this has not been seen in over half a century.

From Greece - less congratulatory tones. An article in Greek daily Ta Nea carries the headline, “Europe becomes Merkeland after the triumph of the Queen of austerity.”

 Northern Europe congratulates victorious Merkel - but warns of the challenges ahead

A leader in Dutch daily Trouw argues that Merkel was re-elected because of the German public's "reluctance to engage in big adventures." However, it adds that "for Europe, Merkel's victory is good news...Merkel believes in political and monetary entrenchment of her country in Europe - and without Germany the euro is a lost project."

Meanwhile, De Volkskrant quotes an unnamed EU ambassador of a eurozone country saying that the member states are "27 poodles on the leash of Angela Merkel". The newspaper adds: "the Empress herself stresses that she is in favour of a European Germany, and that is undoubtedly true". The paper goes on to criticise Dutch PM Mark Rutte, saying, "Mark wants what empress Angela wants. The German voter has on Sunday decided the European agenda of Mark Rutte".

Belgian centre-left daily Le Soir  takes a consiliatory tone, arguing: "Certainly the Greeks don't like [Merkel]. But what would Greece and the euro today be if she hadn't insisted that the Greeks must tighten the belt before receiving European funds? Who else in the European Council would have managed to keep heads cool when having to listen to the cries on the streets of "Merkel, Hitler"?"

Meanwhile, Politiken from Copenhagen congratulates Merkel, while urging her to take action, saying,“The key is that the German government creates stability and firmly stands behind its support of EU and the euro... It is necessary that the new German government puts itself at the forefront of a European recovery"

Austria's Der Standard reports on Merkel's "middle-direction, mediocrity, " which "gives the Germans soundness and stability." Separately, a piece in the Telegraph argues Merkel's re-election should not lull the Germans into complacency, which could prevent it from making the necessary reforms to fix the underlying structural weaknesses in its economy.

Central Europe: Move forward the debate

Lidové Noviny from Prague takes a more critical view of Merkel's re-election, saying that she has "brought no solutions, and the eurozone remains a risk for the lasting prosperity of Europe." The paper writes that, "It is indeed sad that the euro-sceptic party Alternative für Deutschland has narrowly failed to reach the Bundestag. This would have opened the political debate in Germany. But next year will see elections for the European Parliament and then the AfD could get a breakthrough."

Polish daily Rzeczpospolita says that "a miracle is expected from Merkel: reform the EU to make it attractive for future generations. The new government has to show that it is possible in crisis-torn Europe to combine sound economic policies with growth incentives. The young generation needs a signal that it is not eternally damned to live worse than their fathers and grandfathers."

Varied reactions then as expected. However, there does seem to be a consensus that, for better or worse, Merkel will continue to set the tone and agenda for Europe for some time to come.

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

German election exit polls suggest plenty of scenarios still in play

The first exit polls are in and it looks to be a very close run election. However, not at the top but at the bottom.

ARD: CDU/CSU 42%, SPD 26%, Greens 8%, Die Linke 8.5%, FDP 4.7%, AfD 4.9%. 

ZDF: CDU/CSU 42.5%, SPD 26.5%, Greens 8.0%, Die Linke 8.5%, FDP 4.5%, AfD 4.8%.

Both polls suggest German Chancellor Angela Merkel CDU/CSU is the clear winner. Well above expected. However the results of the others mean there is plenty of scenarios still open. Below we run through them.

Merkel gains her own majority: Unbelievably this could happen. If both AfD and the FDP miss out, with other small parties garnering around 5% of the vote but not entering the Bundestag, Merkel’s party could gain its own majority with around 42%. Currently they look to be around three seats short of this but after having been barely considered during the campaign, this is now a very real scenario.

CDU/CSU and FDP coalition continues: Despite exit polls suggesting FDP has missed out, they are so close to the threshold that they could easily still make it in. If the FDP gets in and the AfD still misses out then the current governing coalition could be maintained.

Grand Coalition: If the FDP and AfD sneak in above the 5% threshold, as is possible, then a grand coalition would likely ensue, albeit with some very complex negotiations. This could also happen if both the FDP and AfD miss out but Merkel fails to garner enough votes for her own majority.

Plenty of scenarios still possible then, even one which was barely considered. Stay tuned as we update this blog and tweet @OpenEurope throughout the evening.

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...

What do the Bavarian election results tell us about next week's general elections?

Yesterday’s Bavarian state elections saw a clear victory for the CSU, Merkel’s CDU sister party at the federal level, securing 47.7% of votes in the 180-seat state legislature. That translates into 101 seats for the conservatives, 10 more than needed to form a majority government.

Results of the Bavarian state elections

So what could that mean for next week’s general elections?

• Could the results provide a boost to the CDU/CSU and push them an absolute majority at the federal level? This is very unlikely given that the CDU/CSU haven't won an absolute majority at the federal level since 1957 whereas an outright majority for the Conservatives in Bavaria is rather the status quo (except for the previous coalition with the FDP, the CSU has enjoyed an absolute majority for 56 years). 

• Furthermore, both the CSU and the SPD gained percentage points compared to the previous elections. This result was basically in line with the large majority of pre-election polls. So it won’t necessarily give either party an edge for the next week’s general elections.

• The FDP lost 4.7% compared to previous state elections and, with overall result of 3.3%, missed the threshold to enter the Bavarian state parliament. This could be seen as a bad omen for next week's general election and may raise the chances of a grand coalition. That said, tactical voting (from CDU/CSU) voters is an important part of FDP support. This result could prompt an increase of such voting at the general election, as CDU/CSU voters fear an FDP failure and the move towards a grand coalition. FDP leader, Philipp Rösler, called its party’s result in the Bavaria elections “a wake-up call”. It could end up being exactly what the party needed to secure its entry to the Bundestag.

• It's also worth noting that the FDP has traditionally faired badly in Bavaria and rarely makes it into the parliament - the last election then was an exception, rather than the rule. Furthermore, the CSU feared losing an absolute majority so many supporters voted tactically at the previous election, at this one the majority was essentially assured.

• The usefulness of the Bavarian elections as a bellwether for the general elections should not be overestimated either - the CSU dominates, while the Free voters also have a strong support base but the Greens traditionally struggle. It's also worth keeping in mind that Alternative fur Deutschland did not run in the elections.

The general reading seems to have been that this is a bad sign for the current coalition government with the FDP struggling. That could well be true, but it may just end up being the sign that supporters of the current coalition needed to vote in a way which ensures extra FDP support. All still to play for then next week.

How one finger livened-up the German election campaign

Peer Steinbrück, the SPD’s Chancellor Candidate graces the front cover of today’s Süddeutsche Magazine unapologetically flicking the bird.

Here's Steinbrück's picture interview in full, (quick fire questions, with 'wordless answers'):

" You’re called Mishap Peer, Problem Peer, Peerlusconi -- you’ve got no worries about being given nice nicknames?”

"Mr. Steinbrück, you and your wife have been married for 38 years. Your advice on a long and happy marriage?"

"Only 26% would vote currently for the SPD. Is that because of you?"

"The FDP leader Philipp Rösler says you don’t have capabilities to be Chancellor. Do you have a message for him?"

"Do you still wear a vest under your shirt?"

"On  scale of one-10: how good is Angela Merkel as a crisis manager? (1= terrible, 10= expert.)"

"How would you react if the Greens go into coalition with the CDU/CSU after the election due to a lack of alternatives?"

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.

Europe's most important political party hits the campaign trail: a sneak peak at the EU section of CDU/CSU's election manifesto

We've managed to get our hands on the CDU/CSU's draft manifesto for September's federal elections, which is not due to be officially presented until Sunday. Given that the CDU (which always runs jointly with its Bavarian sister party CSU) is the single most important party in European politics by a mile, this is definitely one to watch.

Interestingly, the first section of the manifesto is entitled "Germany's future in Europe", indicating how closely these two issues are linked.
Aside from the obligatory pro-European rhetoric, here are the key points we've picked out regarding what the parties will campaign for and against on the EU/eurozone:

CDU/CSU support:

-  More EU oversight over national budgets with sanctions for breaching the Growth and Stability Pact,
-  So-called ‘Competition Pacts’, i.e. enforceable contracts between the Commission and member states on economic reforms,
-  Increased labour mobility, including greater co-ordination on the recognition of academic degrees and professional qualifications, as well as on access to social security,
-  Retaining the Franco-German axis as the "motor" of European integration, while at the same time wanting to draw Poland - described as the most important partner among the new member states - closer into this fold,
-  Pushing German as one of the main EU languages (along with English and French).

CDU/CSU oppose:

-   Sovereign debt-pooling via 'eurobonds',
-   An EU-wide guarantee scheme for bank deposits,
-   A split between the eurozone and the wider EU (“We would prefer to progress with all EU partners”).

So broadly no big surprises, German support for economic reforms and budgetary restraint on one hand and opposition to debt-pooling on the other is well established, although we note the concept of giving the Commission greater powers was not included in the recent Franco-German proposals on the eurozone. The explicit commitment to pushing for greater use of German within the EU hints at a more assertive Germany that is more at ease with itself.

Tellingly, the UK is not mentioned explicitly in the EU section, although the co-operation between the two countries on tax transparency is mentioned elsewhere in the document. From a wider UK perspective, the focus on economic reform and competitiveness is welcome, although the UK would not want to give the Commission greater competence in this area. The UK would also welcome any moves to clarify the rules governing EU migrants' access to domestic welfare systems - though it's going to be very interesting to see more details on transferability of benefits, as that's something many in the UK are keen to limit.

We will of course keep you updated as the campaign progresses.

Steinbrück envisages a Europe led by Franco-German-Polish axis (Hello Cameron!)

Peer Steinbruck laid out his foreign policy in a talk at Berlin's Free University

Peer Steinbrück , leader of Germany’s centre-left SPD Party, and Merkel’s main opposition in September’s elections, laid out his foreign policy in a speech yesterday. It could have been a bit of ‘a non-event’. Germany’s Europe policy can hardly be expected to change in terms of substance, regardless of whether or not Steinbrück seizes the chancellery from Merkel come September. 

Although Steinbrück is critical of elements of Merkel’s vision for Europe, when it comes to the nitty-gritty of substance he mostly agrees. This can be put down to the fact that the traditional conservatism of the German public is more deeply rooted than its occasional impetus for grand reforms.

Against this background, we were expecting a lot of rhetoric, but no grand revelations. But then Steinbrück said something interesting.

Discussing Europe’s role in the world, he called for a Franco-German-Polish axis to shape its future. “This triad of Germany, France and Poland must take the initiative for a new beginning of European foreign and security policy,” said Steinbrück.

The first point to make here is that while the Franco-German alliance in European affairs is nothing new (strained though that partnership may be at the moment) the allusion to Poland as European leader on the world stage is. (And is one that will please a certain Polish Foreign Minister.)

However, the most interesting part of Steinbrück’s speech was the country he did not mention when discussing Europe’s role in the world: the UK.

Whilst Angela Merkel has gone out of her way to point out the importance of the UK playing a leading role in Europe, Steinbrück said the future lies in a Berlin-Paris-Warsaw axis. A signal to London and David Cameron as the Conservative seek new EU membership terms? Possibly.

As we’ve argued before, if Steinbrück became Germany’s next chancellor, the general thrust of Germany’s eurozone politics will likely remain. That’s not big news. The real significance of a centre-left German coalition after the September election for the future of Europe may instead be Berlin being far less interested in striking a new Anglo-German bargain.

We dare to guess that Number 10 wasn’t entirely happy about Steinbrück’s remarks.

Alarm für die SPD: German voters not impressed by the party's approach to the eurozone crisis

We thought we’d revive an old Open Europe tradition today – Friday afternoons = German polling time. And we certainly have some interesting news to bring you from a new ARD Deutschlandtrend poll published yesterday.

First off the parties – no huge variance here compared to other recent polls: CDU/CSU on 40%, SPD on 26%, Greens on 15%, Die Linke on 7% and FDP on 4%. Angela Merkel’s lead here looks solid, the question is will the FDP make it over the 5% threshold?

As we’ve noted before, if the FDP fails to re-enter the Bundestag, it is likely to be in significant part because of the performance of the new German anti-euro party Alternative für Deutschland which appears to have settled in recent polls on 3% (having hit a high of 5% a couple of weeks ago). Interestingly however, 37% said that it would be good if AfD won seats in parliament compared with 58% who said it would be bad; a significant pool of potential support.

The poll also has some worrying news for the SPD in particular – 70% of respondents said that the party had not really made it clear how it intended to solve the eurozone crisis or to differentiate its own policies from those of the government. This is something we’ve flagged up before – rhetoric aside, the SPD’s eurozone policy is broadly the same as that of the coalition’s. The question is, if the party is tempted to go for greater differentiation in this area, would it take a tougher stance (like it did on Cypriot banks) or a softer stance (e.g. on some form of debt-pooling or a dedicated ‘growth fund’).

The poll also confirms the SPD Chancellor candidate Peer Steinbrück's dreadful head-to-head record against Merkel - despite a small improvement in his ratings he still trails her by 28% to 59%.

Finally, 76% of respondents said they expected the euro to survive the crisis, although 29% said they want the return of the Deutschmark. 58% said that the government ought to do “everything possible” to ensure that this happens which is interestingly vague – does it mean greater EU-wide fiscal supervision or a more activist ECB? We suspect that if the latter were offered as a specific policy option it would not gain such high support.

Aufstand im Bundestag: Who are Germany's most rebellious MPs?

On Thursday, the German Bundestag is expected to vote on the Cypriot bailout. The package is likely to be approved with a clear majority - the opposition SPD and Greens will mostly back it. In addition, the symbolically hugely important "chancellor's majority" - the threshold for the government to get an absolute majority with only the votes of its own MPs - is likely to be reached as well. Only around 12 MPs from the coalition parties (CDU, CSU, FDP) are likely to vote against. This is not particularly surprising. Remember, the bill for this rescue package was largely passed on to Cypriot depositors, and therefore enjoys much greater support in Germany.

Still, with the eurozone bailouts remaining ever-so contentious - and with a new anti-euro party on the German political scene - we thought we'd see how many coalition (CDU, CSU and FDP) MPs have so far rebelled on the various eurozone bailout votes. 

As the table below shows (click to enlarge), according to our calculations, at least 36 MPs have rebelled against Merkel on at least one occasion. Four MPs - Klaus-Pieter Willsch & Manfred Kolbe (CDU), Peter Gauweiler (CSU) and Frank Schäffler (FDP) - have a 100% record in rebelling on eurozone votes - for the rest, there's a surprising spread.