Is it the end of political stability in Germany? Will it tilt left? Is it the end of political stability in Germany? Will it tilt left? http://www.federatedinvestors.com/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedinvestors.com/daf\images\insights\article\german-chancellery-small.jpg September 8 2021 September 8 2021

Is it the end of political stability in Germany? Will it tilt left?

With Merkel exiting, the center-right CDU suddenly looks vulnerable.

Published September 8 2021
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German national elections, billed as the most consequential on the Continent this year, actually tend to be dull affairs. Christian Democrats, along with minority coalition partners, have generally ruled most of the past 70 years, including the last 16 under German Chancellor Angela Merkel. But with the face of Germany—not to mention the dominant role she’s played throughout European Union and global affairs this millennium—stepping down, what was supposed to be a routine handoff to her party successor, Armin Laschet, is proving to be anything but. Increasing political polarization and the pandemic effect are stoking uncertainty in what is deemed the world’s most stable democracy. The future makeup of the government is very much up in the air, making for some potentially unexpected drama.

With the election less than three weeks away, polls show the humdrum Laschet in a free fall, the victim of a series of gaffes, the worst coming when he was seen laughing during a July visit to a flood-ravaged region of Germany where at least 180 people were killed. Described by pundits as boring and robotic, the center-left Social Democrats’ choice, Olaf Scholz, is nonetheless topping the polls and climbing as the most popular and capable of the options. As finance minister and vice chancellor in Merkel’s coalition government, Scholz is well known, viewed as a technocrat and considered a good continuity candidate to replace the widely popular Merkel. A third candidate, the Greens’ Annalena Baerbock, is considered a comparatively fresh face relative to the two older men. But after an early spurt followed by a plagiarism controversy, she has faded in the polls primarily due to her lack of governing experience.

Of course, German elections and their aftermath are hard to forecast with any finality. For one, citizens have two votes—one for the candidate and one for the party. This process tends to spawn coalition governments that temper the influence of any one faction and thwart sweeping change. Due to additional unique historical reasons harking back to Weimar Germany, minority parties are capped at 5%. Indeed, a dramatic restructuring seems unlikely no matter the outcome in this month’s elections. Unlike the U.S. and its two dominant parties and wide political divide, Germany’s polyglot political structure generally hovers closer to the middle, where three of its four largest parties reside (center-right Christian Democratic Union/Christian Social Union, or CDU/CSU, center-left Social Democratic Party, or SPD, and libertarian-minded Free Democratic Party, or FPD). The Bundesrat (the upper house where members are appointed, not elected) further inhibits radical change by requiring two-thirds approval to pass legislation.

Center-left Social Democrats in the lead

At this writing, polls show the SPD slightly ahead of the CDU for the first time since 2006. A win by Scholz could align the party with its more natural partner, the Greens, tilting policies in Germany and the EU to the left for years to come. But with none of the parties likely garnering more than 25% in the polls, it’s all but certain it will take a 3-way coalition to form a new government—even as there are 16 different potential coalition combination outcomes.

If the SPD does win, observers believe it will form a coalition with the Greens and the FPD, whose free-market tack should serve as a brake on higher taxes, increased fiscal spending and tougher regulations the SPD and Greens favor. The market should be OK with this. A worst case would be an SPD-Greens-Die Linke (far left party) coalition, though this seems highly unlikely. The slowly receding Die Linke is small, and infighting between moderate and progressives in both the SPD and Greens make a further move left unlikely. The right-wing populists, the Alternative for Germany or AFD party, can possibly surprise on the upside, an outcome many countries have witnessed the past several years. But it essentially will be sidelined as no one will partner with the AFD. Of course, the CDU may well emerge as the winner—it’s known as a strong closer—and most Germans want stability and continuity. Whoever emerges, replacing Merkel’s moderating, outsized influence that has guided the world’s fourth-largest economy and the EU for almost two decades won’t be easy. We’ll check in again after the dust settles post-election.

Tags International/Global . Politics .
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