Germany: Status-quo after the 2017 parliamentary election? - Danske Bank

Analysts at Danske Bank explain that Germany is holding parliamentary elections for the Bundestag on 24 September 2017 and expects a status quo in terms of a big coalition.

Key Quotes

 “In November 2016, Angela Merkel announced she would stand for re-election as Chancellor. Should she be re-elected in September, it would be her fourth term in office. However, with her pro-EU stance and a perceptional mishandling of the ‘refugee crisis’, she faces increasing scepticism from the public and party members, it is questionable whether she can secure another term in office.”

“The latest opinion polls have shown a significant surge for Merkel’s current junior coalition partner, the social democrats (SPD), after the former European Parliament president Martin Schulz was named as the party’s Chancellor candidate (the ‘Schulz’ effect). The SPD at 32% is now head-to-head with Merkel’s Christian democrats (CDU/CSU) at 34%. Supported by the anti-immigrant, anti-establishment mood in Europe, the Alternative für Deutschland party (AfD) has also gained significant momentum since 2015. Despite its success and representation in nine federal parliaments, it is still only polling around 7% at the national level. This would be likely to secure the party some seats in parliament – given it can pass the 5% hurdle. However, its chances of governing are still very slim, as all other parties have ruled out forming a coalition with the party. Therefore, we could have a similar outcome as in the Dutch parliamentary election in March, where anti-establishment parties could gain in terms of seats but would still be excluded from government due to political isolation.”

“Upcoming federal elections in Schleswig-Holstein and Nordrhein-Westfalen will give important hints for the election outcome in September and it will be particularly interesting to see how SPD and AfD perform. In the Saarland state election on 26 March, the SPD underperformed despite the ‘Schulz’ effect and at 29.6% came in well below the CDU with 40.7%, as voters seemed to eschew the prospect of a ‘red-red-green’ alliance.”

“The overall satisfaction with the current government is quite low, with only 44% expressing satisfaction. However, the centrist parties (CDU and SPD) still rank highest in terms of party competency, across a variety of areas, including immigration policy. Therefore, another grand centre-left-right coalition between CDU/CSU and SPD currently still seems to be the most likely outcome after the election, although centrist coalitions of Greens, FDP and either SPD or CDU are also conceivable. A left-wing coalition of SPD, Greens and the Left, seems unlikely for now due to significant policy and ideological differences. Due to its political isolation, the AfD seems unlikely to capture enough seats to form a majority government, which is, for example, needed to elect the Chancellor (Article 63), to avoid a vote of no-confidence to topple the government (Article 67) and for constitutional changes.”

“Even with a status quo in terms of a big coalition, a resurgent SPD would certainly try to get a bigger say in setting the policy agenda and increasing its cabinet posts after the election. For the future direction of economic and fiscal policy making, the choice of Economy and Finance Minister will be crucial. Which party receives these high profile roles will not least depend on the parties’ election results. Should both ministries remain with the CDU, we would be likely to see a continuation of fiscal consolidation and liberal economic policies. Should the SPD become the largest faction and secure one or both of the ministries, we could see higher public spending as well as a less-strict austerity stance on EU-wide issues. Even Greek debt relief or the issuance of ‘euro bonds’, which the current CDU-dominated government has always opposed, could become a discussion point, in our view.”