Germany: Angela Merkel wins a fourth term as right-wing AfD party enters the Bundestag
September 25, 2017
As predicted, the German parliamentary elections held on 24 September sent six parties into the Bundestag for the first time. Despite a significant drop in support, Chancellor Angela Merkel’s Christian Democratic Union (CDU) earned the largest share of the vote and will therefore lead coalition talks with other parties. The right-wing AfD gained a larger share of the vote than polls had predicted, making it the third-largest force in the parliament. As a result, many fear a rightward shift in the national political discourse, as a weakened Merkel seeks to accommodate her more conservative Bavarian CSU allies and her potential coalition partners, the Free Democratic Party (FDP). Martin Schulz, her main challenger and chairman of the SPD, has ruled out joining a coalition after his party’s historically-low score; he will take on the lead opposition role. Angela Merkel will most likely form a government with the liberal FDP and the Green party—a so-called Jamaica coalition—a first in Germany’s postwar history. Negotiations are expected to drag on until Christmas or even into the new year.
A Jamaica coalition is not expected to deliver the groundbreaking economic reform many analysts believe Germany needs, especially regarding infrastructure investment and pension and skills reform. A small fiscal, pro-cyclical stimulus financed by the sizeable fiscal surplus could be introduced through tax cuts. On Europe, Merkel might have to accommodate the FDP’s more hawkish stance on Eurozone reform. Overall, the new government will inherit a relatively strong and stable economy, and the largely unchanged policy direction should not alter the short-to-medium-term outlook of the economy too dramatically. With the Greens potentially back in government, Angela Merkel could perhaps shift her stance on the car industry, the mainstay of the German economy. She had come out in support of the industry at the height of the diesel and cartel scandals, while the Green party has advocated for a swift switch to newer and cleaner technologies.
Author: Christopher Mc Innes, Economist