Germany: Difficult three-way coalition talks lie ahead – HSBC

Analysts at HSBC explain that Angela Merkel’s CDU party has won a fourth consecutive term and as the SPD has already ruled out joining a coalition, the CDU will seek a pact with the liberal FDP and the Greens, but the political divide between these three parties means negotiations will be tough, with no guarantee of success.

Key Quotes

 “Angela Merkel´s conservative CDU (with its sister party, the CSU) won the largest share of votes, as expected.  But at just 33.0%, its vote share was 8.5ppts lower than in 2013, a relatively disappointing result for Mrs Merkel.  The social democrat SPD came second with 20.6%, the party´s worst post-war result. Four other parties entered parliament.  The far-right populist Alternative für Deutschland (AfD) came third, and did better than polls were indicating, taking 12.8% of the vote, almost tripling its previous share.  The liberal FDP came fourth, followed by the Left Party and the Greens.” 

“Stung by its poor showing, the SPD immediately said it wanted to go into opposition, meaning the current grand coalition will end.  This leaves only one viable coalition option for the CDU/CSU:  a so-called 'Jamaica' coalition (the colours of the parties involved match those of the Jamaican flag) with the liberal FDP and the Greens.  The established parties have ruled out working with the AfD, meaning no other coalition option would have a majority.” 

“… narrowing her coalition options and making coalition talks difficult

Coalition talks will be very difficult due to fundamental differences on key policy areas, such as the environment and defence.  During the election campaign, some high-ranking party members were sceptical of this three-way collaboration or even ruled it out completely.  If talks break down and the SPD sticks to its intention to enter opposition, then the German president will ask Angela Merkel to lead a caretaker administration pending fresh elections.  

If an agreement on a 'Jamaica' coalition can be reached, it would contain a range of views on European integration.  The need to compromise means it may be relatively less supportive of the French president's integration plans than a CDU-SPD coalition would have been.  On domestic policy issues, we would expect a ‘Jamaica’ coalition to implement tax cuts for low- and mid-income earners.  While the FDP has favoured substantial tax cuts, the Greens have not.  So any compromise would likely be close to the CDU’s position of modest tax cuts CDU (around EUR15bn).”