On September 26, German citizens are called to the polls to choose the composition of the Bundestag after a campaign with polls that resemble a roller coaster. Although they have favored Olaf Scholz’s SPD Social Democrats since August (25% voting intention), the only thing that is taken for granted is that the parties will have to govern in coalition , something common in Germany, but this time it is most likely a made up of three parties to reach 50% of seats.
Scholz, with long political experience as minister of the portfolios of Social Affairs and then Finance during two Merkel administrations , is benefiting from the image errors made by the other candidates. Armin Laschet, chosen as Merkel’s successor by the CDU / CSU Christian Democrats, has fallen sharply in the polls after laughing as the federal president spoke words of condolences to those affected by the floods and an aimless campaign.
Many party members regret not having chosen the Bavarian Markus Söder, considered more charismatic than Laschet. Annalena Baerbock was elected green muse, but lacks political experience, has sinned to make up her resume and is even accused of plagiarism. It also failed to profit from catastrophic floods attributable to climate change .
However, neither the CDU / CSU nor the SPD wish to form a new grand coalition , rather they will try to join forces with smaller parties that will play a decisive role in the election of the new chancellor. They are the Green Party, with a voting intention of 16% despite Baerbock’s mistakes, and the liberal FDP, a party of the wealthy urban class, with 12%. However, the two formations have a very different economic agenda.
The last German governments have been characterized by disciplined fiscal policies, respecting the constitutional rule that only allows maximum federal public deficits equivalent to 0.35% of GDP per year. 2020 represented the exception to this rule , as the government approved a package of 130,000 million euros to mitigate the recession. The result was the increase in public debt in terms of GDP by more than ten points in one year, from 59.7% to 70%.
With the economic recovery, both CDU / CSU and FDP are in favor of returning to fiscal discipline as soon as possible, which is why they would be ideal partners. The liberal leader, Christian Lindner, and Laschet hail from North Rhine-Westphalia, where both parties have ruled together since 2017.
In addition, both promise tax cuts, although the Christian Democrats would favor the lower-middle class more and the FDP the wealthy. Furthermore, the return to fiscal discipline by Germany would influence the rest of the eurozone countries to abandon their expansionary fiscal policies as soon as possible. However, Linder looks down on the constant stumbling blocks of the Christian Democratic candidate.
A more viable option would be a coalition between CDU / CSU, FDP and Greens, the so-called “Jamaica”. However, the aim of the Liberals is to lower taxes and contain public indebtedness, while the Greens are in favor of a digital tax on tech giants and relaxing the fiscal rule to promote public infrastructures for 500 billion euros.
It’s not that the FDP doesn’t acknowledge the gaps in the country’s adaptation to climate change and digitization, it’s just that it believes the private sector should take care of them, while the Greens want a public-private mix. In fact, the Greens have become more pragmatic and want a good tune with companies that focus on environmental sustainability.
Another coalition with a high probability of reaching 50% as the Social Democrats advance is the “semaphore”, between SPD, FDP and Greens. However, Scholz did not make his position on the tax rule clear. It seems that he wants his return, but in a more progressive way than the liberals, which could lead to friction.
In addition, the FDP made it clear that it would not allow any tax increase, while Social Democrats and Greens would be in favor of the redistributive role of the State to reduce social differences. Therefore, it seems a union destined to fail.
Finally, a Red-Red-Green coalition cannot be ruled out, between the SPD, the Left and the Greens. The Left is a communist party heir to the GDR and proposes to increase taxes on financial transactions and inheritances. However, the Left proposes a rapprochement with Russia, which is a bad fit for all parties, including the Social Democrats.
Whatever the ultimate coalition, it is clear that the end of Merkel’s long-standing centralism opens the door to a real debate about the role of the state in German and European economic policy.
