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?

Rutte shows Clegg how its done on EU reform

It's good to hear a Dutch speaking liberal party leader forcefully expressing the case for EU reform. Sadly, as we noted earlier, it certainly wasn't Nick Clegg.  

In fact it was the Dutch Prime Minister Mark Rutte, who once again today reaffirmed his credentials as a key proponent of EU reform with a speech to the FDP in Berlin.

As we have also noted before, the Netherlands (both the country and its government) is becoming a bit of a breeding and testing ground for ideas on EU reform. In his speech Rutte said:

"A lot of people in Europe are angry at the EU. Angry at those who sat at the controls in Brussels during recent years. Our common project of peace becomes, if we don't recognise this on time, a project of discontent."

"We won't restore the future and the belief in a functioning Europe with European elections or with European ‘spitzenkandidaten’. The ball is now in the court of national parliaments. Their legitimacy is greater than that of the European Parliament. So they should deal at an earlier stage and also more intensely with decision making in and from Brussels"

"European where necessary, national where possible. Tasks such as healthcare, education and taxation really are things which are for the Netherlands to decide, I think."

"That's why the European Commission should be given four core tasks: to strengthen the single market, to stimulate international trade, to more strictly apply agreements made and to only regulate in Brussels what really must be dealt with at the European level."

"All too often agreements regarding the budget or the democratic rule of law haven't been respected...Europe is more and more being associated with an anonymous, formal and impersonal layer of government where national sovereignty is being replaced by normative rules ‘from Brussels’".

Lots of overlap (at least in tone) with what Chancellor George Osborne and German Finance Minister Wolfgang Schäuble laid out in the FT last week.

There was however one of Rutte's comments lacked credibility:

"Unemployment is the biggest problem of our time. I see it in my circle of friends.  You probably do too..."

Admittedly we’re not familiar with the Dutch Prime Minister's circle of friends but we find it hard to believe many of them are struggling for work...Nevertheless, Clegg could learn a thing or two.

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.

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.

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...

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.

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.

When ideology meets economic reality (part III): Germany squabbles over the Financial Transaction Tax

The Bundesbank, The Deutscher Aktieninstitute (DAI), and even EU civil servants from the 11 participating countries have all warned against the FTT in its current form.

Today saw yet another German voice raised again the tax – this time from the very party that is meant to be its greatest champion. Nils Schmid, Baden-Württemberg's Minister of Finance – from the German social democrats (SPD)— wrote a letter to German Finance Minister Wolfgang Schäuble condemning the FTT in its current form as “rubbish.” Ouch.

Schmid’s intervention, says that "If the financial transaction tax is implemented as is currently planned, initial estimates show that it is likely to have a serious impact on certain segments of the market (money and capital)." He then calls for a “proper configuration” of the FTT.

So why is this important? Twofold:  first, it shows that in light of the overwhelming evidence of the negative economic impact of the FTT in its current form, the support for the proposal is quickly evaporating.

This now extends to the German political parties that have strongly endorsed it. Remember, the FTT is one of the SPD’s main campaigning issues, and served as the party’s quid pro quo for accepting the EU fiscal treaty. Although Schmid caveated his position, saying that he is not opposed to the idea of a FTT in theory, the point has most definitely been made.

Secondly, the FTT controversy has legs to become battleground ahead of the German elections in September. It is an issue that may split politics, both, within the parties and on a national level.

Officially, Schmid’s letter was met with a standard diplomatic line from the German Finance Ministry – which says it is taking concerns raised by Schmid and German banks “seriously.” They won’t say so in public, but the German finance ministry was most likely nodding approvingly…

Meanwhile, deputy chairman of the FDP parliamentary group ,Volker Wissing, saw his opportunity to strike – and took it, saying that Schmid's letter shows with which "naivety" and "rose-tinted blindness", the SPD had driven the demand for a financial transaction tax.

So far the SPD have remained stumm on Schmid’s intervention. But watch this space. If influential figures within SPD are the latest to start make noises about this, then surely, the Commission’s proposal cannot stand?

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.

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."

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.

The UKIP factor and German politics: All eyes on Alternative für Deutschland

Germany's new anti-euro Alternative für Deutschland party is still in its infancy but it has already generated huge interest at home and abroad. While we are not expecting it to cross the 5% threshold in September's federal elections - not even close - with polls between the CDU/CSU and FDP vs the SPD and Greens as tight as they are (see here for latest figures), AfD's electoral result could have a huge bearing on the nature of any coalition government that emerges from the elections, a point also made by Thorsten Junghold in today's Welt. He cites the recent regional election in Lower Saxony, where the CDU incumbent David McAllister came up short by 335 votes while the Free Voters (a separate euro-critical movement) scored 39,000.

As such the AfD could mirror the UKIP factor in the UK (though note that AfD is a very different beast to UKIP), where a party unlikely to enter parliament can still have a decisive effect on the election by tipping vote shares one way or another (ironic given the different voting systems in both countries), and consequently being able to enjoy a disproportionate impact on the national debate and media agenda.  For this reason it is very interesting to see where AfD's votes could come from - and this weekend saw the first (to our knowledge) breakdown of AfD's potential support measured at 24% of all voters:

Source: Infratest dipmap for Die Welt

So clearly the biggest share of AfD's potential support comes from the economically liberal FDP (46%) followed by the 'old left' and former communist Die Linke (29%), the SPD (21%), Angela Merkel's CDU/CSU (19%) and finally the Greens (14%).

This is interesting because it shows that despite AfD's ideological groundings and personnel make-up being more on the centre-right it could attract voters from all parties (also like UKIP). The strong support from Die Linke voters could be explained by the fact that the party has strongly campaigned against the eurozone bailouts, which AfD also opposes (albeit from a different ideological perspective), or even more simply purely as an alternative protest party now that the pirate party appears to have run out of steam.

Definitely a phenomenon we will be keeping a close eye on, meanwhile its worth reading the Sunday Telegraph's interview with party leader Bernd Lucke.

The death of the Bundesbank? Germans come out swinging against ECB bond-buying

Although Jens Weidmann may have been alone on the ECB executive board in opposing yesterday’s ECB decision to buy government bonds, he looks to have the full-force of German public and media opinion right behind him. Over the last 24 hours, the German media, with surprisingly few exceptions, has fired a broadside against the ECB. No holds barred. Mario Draghi may have pleased markets, but he now has a very frustrated Germany – whose taxpayers are implicitly underwriting his institution (and the euro) – on his tail.

One of the most interesting reactions came from the Bundesbank itself, which unusually issued a public statement which ran directly contrary to the ECB’s decision. A Bundesbank spokesperson said:

Weidmann regarded the bond purchases “as being tantamount to financing governments by printing banknotes,” adding, “The announced interventions carry the additional danger that the central bank may ultimately redistribute considerable risks among various countries’ taxpayers.” 

Süddeutsche Zeiting’s Marc Beise has a blistering piece, crediting “Weidmann’s persistent opposition” as the reason why the ECB is ‘only’ buying short-term debt. But, goes on to argue, “Saving the euro is worth a lot of effort but there are two important limitations. A euro rescue at any price can be a disaster economically, that is the red line that must not be exceeded. The other limit is the law: never in a rules based community can the end justify the means. A Euro-community based on breached contracts will always be based on fragile foundations. On Thursday, the ECB has unfortunately crossed both these red lines.”

Meanwhike, Die Welt led with the headline “Financial markets celebrate the death of the Bundesbank”, adding, “For Germany, the nightmare begins. There it was: the word that everyone was waiting for: unlimited…ECB President Draghi brazenly breaks with the principles of German monetary policy.” Bild runs with a similarly eye-catching headline, warning against "Draghi's blank-cheque for debt-states".

FAZ's editor-in-chief Holger Steltzner also took a strong line, saying, “In the eurozone there isn't any division any more between monetary and fiscal policy…We should be curious to hear what the German Constitutional Court thinks about that.”

The warning on the German Constitutional Court is an interesting one (a topic we’ll discuss in future posts) but some politicians went even further, with Hessen Europe Minister Jörg-Uwe Hahn of the FDP and CDU’s Klaus-Peter Willsch (already the initiator of one of the ESM complaints to the German Constitutional Court) calling for the German government to seriously consider taking the ECB to the European Court of Justice for violating its legal mandate.

The ECB wasn’t the only institution on the receiving end though, with the German government and Chancellor Merkel also taking flak. Handelsblatt's deputy editor in chief, Florian von Kolf wrote, “Today is a black day for democracy…Merkel is silent…seemingly happy to have been partly relieved from her here Sisiphus task to save the euro”. DPA reports that SPD parliamentary leader Frank-Walter Steinmeier argued that the ECB’s decision is the “documentation of Chancellor Merkel’s failure...[while Weidmann] protests but Merkel gives the green light”, while the Green party decribed the CDU and FDP opposition as “hypocritical” since it was their failure to take any significant decisions on the crisis which forced the ECB to act.

We’ll continue to cover reaction throughout the day on the blog so stay tuned, but we can’t help but recall all those times we warned that saving the euro at any cost could drive a wedge between countries rather than bringing them closer together…

Germany's Summer of discontent?

Over the last few weeks, a range of German policymakers have fired broadsides against further German involvement in the eurozone crisis, and against further aid to Greece in particular. Referring to September’s troika report on Greece, Michael Fuchs – the deputy parliamentary leader of Angela Merkel’s CDU party – yesterday told Handelsblatt that:

“Even if the glass is half full, that won’t be sufficient for a new aid package. Germany cannot and will not agree to that. We reached the point where the Greeks must show they are capable of delivering a shift long ago.”

Last week, Horst Seehofer, Prime Minister of Bavaria and leader of the CSU, the Bavarian sister party and coalition partner of Angela Merkel's CDU (which has been getting increasingly agitated by the eurozone bailouts), proposed a series of referenda:

"We must involve the people... First of all: on the transfer of important competences to Brussels. Secondly: on the accession of new states to the European Union. And thirdly: on German financial aid to other EU states."

In particular Seehofer cited debt pooling such as eurobonds or a debt redemption fund, adding that "with the CSU there won't be any United States of Europe".

Merkel's other coalition partner, the liberal FDP, is also stepping up its rhetoric, with its leader and deputy Chancellor, Philipp Rösler and also its leader in the Bundestag, Rainer Brüderle, saying they were reconciled with a Greek euro exit. Bavarian Economy Minister Martin Zeil has gone even further arguing that: 

"...a country needs to leave the euro, when it doesn't fulfil its duties. If necessary, two or more [countries] could leave." 

From the other side of the political spectrum, former German Finance Minister Peer Steinbrück (SDP) last month stated that:

"in certain cases, I have increasing doubts whether all countries will be able to be kept inside the eurozone (...) I can see how certain countries will be unable to close their competitiveness gaps [with Germany]"

However, the SPD have also recently publicly come out in favour of eurozone debt pooling - albeit it with strict conditionality in terms of national financial policy-making.

Otmar Issing, former chief economist of the ECB, added his voice to the chorus, saying some eurozone member states might have to leave:

 "Everything speaks in favour of saving the euro area [however] how many countries will be able to be part of it in the long term remains to be seen."

The question is whether all of this is rethoric, or the beginning of something else.

Germans stick to their guns on data retention

As we've noted before, the Germans take privacy and civil liberties seriously, and have refused to implement the EU's Data Retention Directive (the first part of the Directive was meant to have been implemented in 2007 the second part in 2009). There's a lot of history here. Two years ago, the German Constitutional Court ruled the implementing law of the Directive unconstitutional, which in turn triggered the current stalemate.

As the Germans continue to drag their feet, the European Commission has now proposed that the ECJ impose a daily penalty of €315,037 on Germany until it implements the Directive. However, Süddeutsche reports that the liberal FDP Justice Minister Sabine Leutheusser-Schnarrenberger is sticking to her guns and is still refusing to implement the law - something which is increasingly straining relations within the German ruling coalition, with CDU/CSU MPs, and CSU Interior Minister Hans-Pieter Friedrich in particular, less keen to make a stand on the issue than the FDP.

This is becoming a very interesting test case for a potentially new-found German assertiveness in Europe, though it's not alone on this on this one. Sweden, Austria and Romania have gone into this Directive kicking and screaming, but it's definitely Germany that is offering the most resistance at the moment. More widely, of course, this is an interesting example of an EU member state unilaterally refusing to accept an EU law what it goes against the country's fundamental political and constitutional settlement.

Is this party over?

Yesterday's elections in the German region of Saarland saw a somewhat unexpected surge for Angela Merkel's CDU party, which won 35.2% of the votes, ahead of the Social Democrats (SPD) on 30.6% and the far-left Die Linke on 16.1%.

As Torsten Krauel comments in Die Welt, despite expectations of an SPD victory, “The CDU held its own. Angela Merkel will appreciate this when it comes to the formulation of further conceivable eurozone rescue packages”.

But perhaps equally significantly, Merkel’s junior coalition partner at the national level, the FDP, won only 1.2% of votes - a massive drop of 8% compared with the previous elections. In fact, the FDP only just beat the neo-Nazi NPD party by 267 votes.

This also means that in all the regional elections that have taken place over the last two years, the FDP has only managed to get re-elected its heartland of Baden-Württemberg, and even then they just about scraped in with 5.3% of the vote. Despite its history as a party of government (it has often played the role of kingmaker for either the SPD or CDU/CSU), it is literally being wiped off the map, having completely failed to re-invent itself.

As the party stares into the abyss, former party leader and one-time golden boy of German politics Guido Westerwelle (in our view increasingly marginalised as Foreign Minister) organises conferences looking at the prospects for fundamentally re-shaping the EU's constitutional architecture after the crisis, which although undeniably important in the longer term, can hardly be deemed to be a priority for voters concerned about the 'here-and-now' of the eurozone crisis and Germany's role in the bailouts.

Meanwhile, Germany’s young and swinging Pirate Party, which has been critical of the bailouts, came fourth with 7.4%, meaning it has secured seats in Saarland’s regional parliament for the first time. It also won seats in last year's regional election in Berlin and looks competitive in polls ahead of the impending elections in Nordrhein-Westfalen, Germany's most populous state. The Pirates are also contributing to a wider cultural change in German politics, for example pushing mainstream politicians to become more social media-savy, e.g. by joining Twitter, which the Pirates have utilised to great effect.

So as the FDP's star wanes (or more accurately comes crashing down to earth), the Pirates are definitely the ones to keep an eye on...

Will Merkel's fiscal treaty become a hostage of the FTT?

As we reported in yesterday's press summary, given that the recently signed 'fiscal treaty' will impact on the budgetary autonomy of the Bundestag, it will have to be ratified in both houses of the German Parliament by a two-thirds majority.

Here are some basic Bundestag mathematics: out of a total of 622 MPs, Merkel's coalition has 331 (195 from CDU + 43 from CSU + 93 from the FDP), far from the 415 MPs necessary for the two-thirds majority. So Merkel will definitely need to have some of the SPD's 146 MPs on side, and would also like to be able to count on the Greens' 68 MPs just in case. The remaining opposition party, Die Linke rejects the very premise of the treaty so all its 76 MPs are highly likely to vote against.

However, the SPD and Greens have already said their consent is conditional on a number of concessions from Merkel, most notably: a 'growth programme' to balance out the budgetary discipline element of the treaty and the introduction of a financial transaction tax (FTT - its not clear if they want it in just the eurozone or the EU as a whole, although the latter looks impossible). The SPD’s leader, Sigmar Gabriel told German radio that:

"Whether we vote in favour or not depends on whether Mrs. Merkel makes substantial offers to improve the fiscal pact. I can only urge Merkel to finally take care to ensure that her government ceases to oppose the taxation of financial markets.”

This has not gone down with the FDP, who have long been opposed to a FTT unless imposed across the whole EU as minimum. The party’s General-secretary Patrick Döring described the prospect of tying the ratification of the treaty to the introduction of an FTT as “inconceivable” and “irresponsible”, while parliamentary faction leader Rainer Brüderle criticised Gabriel, arguing that:

"This is no place for ideological battles for the purpose of winning future elections. The situation demands statesman-like responsibility from all concerned."

As things stand there is a classic stand-off over the issue, with significant risks for all parties concerned:

Giving in to demands for a FTT or weakening the budgetary discipline in the treaty further, would undermine Merkel's support within her own party and threatens to split the coalition - which could trigger early elections. That said, the threat of early elections may be just enough to keep the FDP in check given their dismal recent poll results. It would also cause huge problems for Merkel in Europe given that she has expended so much political capital on pushing this treaty through.

The SPD and the Greens are far from cohesive on all issues either and getting embroiled in a full debate on this issue could expose flaws in this fledgling partnership. Furthermore, the German public seem to be losing patience with politicians inability to tackle the eurozone crisis - further posturing on the issue for political gain could easily backfire.

In the end then consideration of these risks and the trend for orderly consensual politics in Germany means that the approval of treaty still looks highly likely, posturing aside. Nonetheless it looks as if Merkel will have to offer the opposition some concessions (e.g. the FDP have indicated they could stomach a watered-down FTT along the lines of the UK’s stamp duty). The extent of these could have a big impact on the power base of the current government and the outcome of the next election.

The vote itself is not scheduled until the 25th May, so there is 'plenty' of time for the party leaderships to hammer out a deal between themselves and present it to their MPs to be rubber-stamped...