Keep calm and Merkel on

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22 September 2017

by Cambre Associates and Kohl PR

What’s the standout feature of this German election campaign? Uneventfulness. After a far too exciting 2016, Brussels welcomes the boredom surrounding this last EU stress-test and the predictable confirmation of Merkel’s stable and pro-EU government. That leaves one wondering if this vote changes anything for the EU or for Germany. The margin by which the first two parties will get their pre-established position, and who will be third will provide an answer.

The Merkel continuum

In stark contrast with virtually every vote since the Brexit referendum, neither change nor Europe are the objects of contention in the German campaign. The issues presented by the Christian Democrats (CDU) and the Social Democrats (SPD) of Martin Schulz are too similar. No party can rally on or against Europe because membership of the EU is uncontroversial for most of the population. Merkel is set to win again on a simple ‘we are doing well; let’s keep it up’ platform – a luxury that few leaders in Europe, if any, could afford.

She has faced many crises, including following changing her mind on delicate issues – nuclear phase out, Turkey, or Russia – and taking unusual decisions – on migration, above all. She showed no fear of losing her seat or control of the public discourse, but confidence and trust, something that the EU still longs for. This sets Angela aside from her continental counterparts, as the EU’s golden boy, French President Emmanuel Macron, is already plummeting in the polls.

This traditional centrist success, however, should not mislead Brussels to think that there are no fringes. A decade-long political equilibrium of the country will be broken. The difficulties of the SPD mirror the Europe-wide socialist strive to attract the centre while differentiating from conservative Christian democrats. The radical leftist Die Linke and above all the xenophobic extreme right Alternative für Deutschland (AfD), are not as menacing as their Dutch, French or Italian counterparts. But with the far-right entering the German Bundestag for the first time since 1957, EU opponents are consolidating a presence that will make any coalition’s job of governing even harder – and could even spur internal divisions.

The AfD draws its strength from Eastern Germany – read former communist German Democratic Republic. Polling above 10% nationally, they are forecast between 15-30% part of the vote will be cast for AfD in that region. Economists warn that a strong result in the East could discourage investment from Western Germany or foreign companies, increasing discontent and fuelling the populist rise.

What about Europa?

The two extremist parties are the only ones focusing on the EU – mostly bashing it. Any major shift in Germany’s role and policies vis-à-vis the EU is unlikely. Merkel’s win will cement the Germanic backbone of the EPP across the institutions; it will reaffirm importance of fiscal rigour and steer macroeconomic policies, overlooking some (export-related) imbalances that have some EU partners complaining about Berlin’s surplus. And it will kick-start the Franco-German core, putting some weight behind certain integration files.

But, depending on whether we will see a renewal of the Grand Coalition, the rise of the Liberals from the ashes or even unlikely bizarre constellations like the ‘Jamaica-coalition’ with FDP and Greens – the CDU’s choice of its coalition-partner may decide whether we will see movement in a few important files. Ending far from 40% create difficulties for Merkel in her efforts to build a coalition. A few points in either direction may tip the balance of an SPD torn between risking demise in another Große Koalition or attempting a rise from the opposition.

The CDU remains conservative on institutional reforms of the EU. However Social Democrats, Liberals, and Greens call to strengthen the European Parliament, giving it legislative initiative powers. Liberals and Greens even want to reform the European Commission and turn the Council into a transparent EU Senate. Merkel may need to make concessions in this field so keep watching for the coalition contract. On Brexit, everyone will likely agree on keeping good relations, but making sure London is worse off outside the Union.

On the economic side – think the creation of an EU budget and a finance minister, or even an EU Monetary Fund and Eurobonds – one should be cautious in seeing this election as a milestone. Berlin will have to balance its leadership (and the many calls for it) with internal resistance to deeper and riskier commitments and external rigidity from the East as it pertains to aims towards achieving ‘more Europe’. Especially with the Liberals as a partner, German enthusiasm in reforming the Eurozone will be scant, while SPD and Greens may push for a Eurozone government. A key question is whether Finance Minister Schäuble – who received a birthday speech from fellow EPP member and European Commission President Jean-Claude Juncker no less – will keep his post. Alternatives to the man who was the face of austerity across Europe are likely to turn the German helm on EU economic matters.

On foreign policy, another balance that will be difficult to strike will be ending talks on Turkey’s accession to the EU, on one side, and Merkel’s firm will to keep the EU-Turkey refugee deal alive, on the other – a model that the CDU would like for Northern African countries. Alignment across CDU, FDP and SPD on the reform of the Dublin regulation and the strengthening of Frontex as European border police will help. Furthermore, we may see the rise of a European Defence Union and Defence Fund. CDU and FDP support an increase of defence spending of up to 2% of GDP by 2024 – and the FDP even calls for a European Defence Corps. Russia may remain a conundrum– with Berlin standing firm on sanctions against Moscow, but stopping short of ending Nord Stream II, the pipeline project chaired by the last SPD Chancellor, Gerhard Schroeder, which spurs discontent in Eastern Europe.

The only German Chancellor that achieved a fourth re-election was Helmut Kohl – who recently passed away and received an unprecedented last salute from the EU. The meaning of this election for Europe might be similar. Everything was put on hold before the French elections and then again before this vote. Now is time for Merkel to prove herself a true EU champion, and for the motor of Europe to figure out a way forward that they can agree on. This will depend not on the winner, but on the coalitions that will emerge from the polls. With many Germans still undecided, a few percentage points – both in turnout and result – will be crucial. Ironically, the game will be on after the vote.

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