Merkel’s victory will blunt her sword

Published in Business Spectator (Melbourne), 26 September 2013

Following Germany’s federal election last Sunday, most international commentators concluded that Chancellor Angela Merkel has reached the zenith of her power. Her party won 41.5 per cent of the vote and missed a parliamentary majority by only five seats in a Bundestag of 630 MPs.

The British Guardian announced “The Age of Merkel”; Greece’s Ta Nea newspaper proclaimed the “triumph of the queen of austerity”; and the headline on the front page of Spain’s El Mundo was (in German): “Merkel, Merkel über alles”.

Although there is no doubt that Merkel achieved a remarkable election result, paradoxically her election victory may not have strengthened her position either at home or in Europe.

Over the past parliamentary term, Merkel governed in a coalition with the Free Democrats and a parliamentary majority of nine seats. Within her own Christian Democrats faction, and particularly in the ranks of her coalition partner, there was a small but vocal group of eurosceptics. As the euro crisis dragged on, these backbenchers made it harder for Merkel to gain support for her European bailout programs.

Increasingly, Merkel needed to rely on the opposition parties to pass the relevant legislation. For example, the laws on the establishment of the European Stability Mechanism depended on the support of the Social Democrats and the Greens.

Although Merkel’s slim majority made governing harder, it also provided her with some good arguments on the international stage. By pointing out how difficult it was for her to convince her own MPs of the wisdom of bailout packages for other European countries, she could extract austerity policies from them in return. Merkel could always explain to her international colleagues that to make bailout packages acceptable to her own coalition, she needed to be able to convince her reluctant MPs that Greece et al were not bottomless pits.

After Sunday’s election, this line of argument no longer holds. The most vocal of all eurosceptics, liberal backbencher Frank Schäffler, has lost his seat – together with the whole Free Democrat Party.

Over the whole parliamentary term, the FDP had been in self-destruction mode. Backstabbing, lack of direction and a disastrous communications strategy all contributed to the decline of a once proud party. When Merkel then refused to endorse the FDP before the election, it sealed the party’s fate. It missed the electoral threshold by 0.2 per cent of the vote.

If only every 200th Merkel voter had decided to switch support to the FDP, the party would have survived in parliament – and with it, Angela Merkel’s old coalition government. Now she needs a different partner. This is what will substantially weaken her position.

In all likelihood, Merkel’s Christian Democrats are headed for a coalition with the Social Democrats — the so-called ‘Grand Coalition’ which Merkel already headed in her first term from 2005 until 2009. It would be grand indeed because it has the support of 503 MPs in a parliament of 630, leaving only the Greens (63) and the post-communist Left (64) in opposition.

Though such a large majority certainly makes passing legislation a breeze for any chancellor, this comfortable majority could be a boomerang for Chancellor Merkel. First of all, she can no longer pretend that she needed to take some obscure eurosceptical backbenchers into consideration. Even a larger revolt within her own party would be tolerable given her super-strong majority.

More importantly, though, her potential Social Democrat coalition partner is far more relaxed about granting bailouts to other European countries and has, in the past, occasionally argued for the introduction of eurobonds (jointly guaranteed bonds by European governments). The Social Democrats are also critical of austerity policies for the European periphery and have more in common with the Keynesian positions of French President François Hollande than Chancellor Merkel.

As a taste of things to come, prominent Social Democrat Martin Schulz, who is also president of the European Parliament, just announced that as a price for any coalition agreement Merkel would have to give up her policies on Europe. “Merkel will not be able to continue her policies,” Schulz told news magazine Der Spiegel.

He may well be right – and not just on Europe. In her old, small coalition government, Merkel had to deal with a much weaker coalition partner. The FDP never managed to assert itself against Merkel, mainly because it never really tried. In a coalition with the Social Democrats, Merkel is unlikely to have such an easy ride again.

Despite Merkel’s emphatic election victory, it will be the Social Democrats who will be trying to dictate the rules of engagement. They know that Merkel has no realistic alternative but to deal with them. A coalition with the Greens would be an even bigger provocation to Merkel’s own party and has already been ruled out by leading Christian Democrats as an option. However, the Social Democrats can always threaten to form a coalition of the united left with the Greens and the post-communists.

It may seem ironic but Merkel’s election victory has in no way strengthened her strategic position. Domestically, she is at the mercy of the Social Democrats who will push hard to get their positions through in the next government’s program. Internationally, Merkel’s ‘cash for austerity’ policies are likely to be replaced by a ‘more cash for less austerity’ position.

New bailout packages for the ailing European periphery had been put on hold prior to the election in order not to interfere with Merkel’s re-election. Now that she has been returned to power, the euro crisis will not only be back on the agenda, but for other European countries it will also become easier to extract money and guarantees from the Germans. Not only has Merkel run out of arguments to stop such demands, but her new coalition partner will actively support them.

There may come a day in the not too distant future when Merkel will rue the day she failed to resuscitate her moribund liberal coalition partner. The rest of Europe, however, can relax. Triumphant Merkel is not nearly as powerful as she now seems.