From here to Jamaika: Will the four German parties agree on a coalition agreement?

Thursday, 28 September 2017 13:37

Βy Prof. Dr. Alexander Kritikos
Research Director Entrepreneurship, DIW Berlin
Professor at University of Potsdam

Grand coalitions are obviously unfolding bad consequences to the two large German parties. This was so in 2009 when SPD and CDU/CSU together were receiving only around 57 percent - this time they even ended at only little more than 50 percent. At the same time, the German Bundestag caught a black eye: With AfD, not only a right-wing populist party enters the German parliament for the first time, it has even become double-digit. A potential threat to future investors in Germany. What is a real issue, in particular to the German Social-democrats (SPD): in absolute numbers, almost as many workers have voted for AfD as for SPD, the former workers’ party.

Doubtlessly there are several reasons for electing AfD. Economic reasons are at the forefront, as approval rates for AfD strongly differ between West- and East-Germany (with the former GDR still suffering from worse economic conditions). The uncontrolled influx of migrants from Syria, Afghanistan and other countries to Germany during late 2015 might have been one reason. A second reason is that a large part of male East Germans have not benefitted from the German prosperity: wage increases of those who voted for AfD grew much less over the last 20 year period than for others. AfD-voters feel unjustly treated unlike the voters of established parties.

Even if the CDU/CSU has lost more in absolute numbers, the outcome of these elections is for the SPD a particular disaster. Approval rates for the SPD have halved during the last two decades. However, the party itself is responsible for this outcome. It will remain a mystery why its main candidate Martin Schulz in the election campaign, behaved as if he had been the opposition leader and focused on issues of justice although the SPD was involved in past governments in 15 of the last 19 years. Thus, the party could not mobilize its voters. Yet it was the SPD, which in the last government tried with the introduction of the minimum wage, or the entry in pensions at the age of 63 (when one had worked for more than 45 years) and a couple of further regulations to redistribute incomes from top to the bottom of the income distribution. The party could thus have positioned itself within the existing government as the guarantor of social compensation. For the second time after Schroeder’s so called “Agenda 2010, however, the SPD has been ashamed of its own success. In doing so, it lost even the winners of its initiatives.

As it appears, we can expect now for the first time a tripartite coalition of the Union, FDP and Greens, which basically consists of four parties as the union parties CDU and CSU are two parties. It may sound exaggerated but the Bavarian CSU which happens to be much more conservative than the CDU might become the most problematic part of this future coalition. And they will face a number of major issues where separating positions of the parties may prevail. The economically relevant challenges range from further investments into the German education system, through developing a digitization strategy to substantial investments into German infrastructure. At the same time, dealing with climate issues and the diesel scandal in the German automobile industry could also be a test for the future coalition as well as questions about future strategies of deepening of the Eurozone and the European Union. The French president is expected to make a first move in the coming days. Do this potential coalition want to provide a perspective for candidate countries to enter the Euro-zone? Do they support a European Finance Minister? With what kind of financial means? Should there be a European Monetary Fund? Also the question how to continue the exchange with Greece has the potential to unleash a serious controversy: yes or no to further debt cuts or debt reliefs, and if so under what conditions.

There is potential for more conflicts. Skilled labor is increasingly missing in Germany. In this respect, the future government faces the challenge of finally introducing an immigration law, for instance the way Canadians are handling it. Directly related to this are demographic issues. Currently there are discussions of increasing the retirement age to 70 years. At the same time, the future coalition will have to consider how future refugee flows should be better controlled – a particular issue given the strong increase of the new AfD-party.

This leads to the most difficult future topic. How to deal with those who have not benefitted from prosperity increases over the last 20 years? The issue is that future economic change – in particular the further digitization of the German economy - will continue to accelerate. This will further increase the number of so-called "globalization losers". These people will need a perspective which the established parties currently do not provide. To this extent, a real future challenge to the German political system will be to create new ideas and implement unpopular new measures. If the center parties aim to reduce approval rates to AfD it will be crucial to make decisions in a direction that will give new perspectives to those who are negatively affected by current economic change.