Merkel does it again: Between challenging continuity and continuous challenges.

Yesterday, Germany voted to hand Angela Merkel her fourth term as chancellor of the Federal Republic. Although this might look like continuity in German politics, some serious old and new challenges await the next government, be it digital transformation, necessary investments, or a new populist party in the federal parliament.  

During an election campaign which was widely-perceived as uneventful, Merkel´s Christian Democratic Union (CDU), supported by the Bavarian CSU, dominated the polls for long periods. Consequently, and unsurprisingly, they won this election with 33% of the votes, despite losing about 1 million voters when compared to the 2013 elections (about 8,5%). The Social Democrats (SPD), also shed support among the electorate, only winning 20,5% of the vote. The so-called Alternative for Germany (AfD) came third (12,6%), marking a watershed for the German political landscape since this right-wing populist and Eurosceptic political party was never represented in the federal parliament before.

Furthermore, the pro-business liberal Free Democratic Party (FDP) is back in parliament with 10,7% of the vote. The left party (LINKE) won 9,2% while the Green Party gained an unexpectedly high 8,9% (Bündnis 90/Die Grünen). Voter turnout was 76%, showing that the electorate treated this election with the seriousness it merited.

Coalition options

The results of this election call for a future coalition government under the leadership of Angela Merkel. The former junior partner of Merkel´s last government, the Social Democratic Party (SPD), has ruled itself out as a coalition partner. The new governing coalitions will most likely be negotiated between the conservatives, the liberals (FDP), and the green party; no party is willing to form a coalition with the AfD. Such a tripartite arrangement (dubbed the “Jamaica coalition”) would be a novelty at the federal level. The conflicting political positions of the parties pose many difficulties. On refugees, climate, and energy policy, the Greens’ positions are quite distant from Merkel´s. Given the even bigger differences between the positions of the liberal FDP and the green party, the negotiation process might take some time and complicate predictions regarding the future policy agenda.

New player ­– new rules?

After narrowly missing the 5% electoral threshold to sit in the Bundestag in the 2013 elections, the right-wing populist “Alternative for Germany” (AfD) enters the federal parliament for the first time. In close connection to the recent government’s refugee policy, the party gained ground in this year´s federal election campaign by demanding immediate closure of the borders, a minimum quota for deportations, and the prevention of family reunions. Among other things, this explains how the AfD has won over many former conservative voters, and has now entered the federal parliament for the first time. This will most likely affect the political culture, as well as the tone and level of conflict in parliamentary and media debates.

A decisive term ahead for Germany

Rather than speculating on the concrete policy of a future governing coalition, I want to briefly outline some of the most important political challenges facing Germany in the legislative period to come.

Firstly, the high number of refugees in Germany puts politicians under pressure to come up with long term strategies on how to integrate them into society and the labour market, how to reunite families, or to arrange deportations. Whereas the conservative union lacks a unified position on many of these questions (the CSU made a shift to the right after losing many votes to the AfD), the greens called for family reunions, a liberal visa policy, and safe and legal routes for refugees. This topic could lead to severe conflict.

Secondly, the digital transformation is still under debate. Will the Germans be willing and capable of creating a fundamental transformation of their industry, infrastructure, and those countless other areas where digital technology offers solutions for the future? The upcoming legislative period will be essential for setting the right course. It´s up to the next government to create circumstances and incentives to facilitate the digital transformation.

Bolder investments in digital infrastructure are necessary to keep pace with technological development, as fast broadband connections are a central requirement for the so-called industry 4.0. Start-ups, universities, and the public sector are also dependent on technological infrastructure. Another aspect, the digitization of society through the widespread use of smart technology (the Internet of things), heavily depends upon the implementation of policies regarding data-protection. Furthermore, relevant technological trends like 5G, IoT or IA must be introduced quickly to avoid slowing down the momentum of the digital transformation.

Besides digital transformation, energy transition (“Energiewende”) will be another central project pushed by the new government. It comes with its own challenges. On the one hand, prices for electricity are rising, following the decision to phase-out nuclear power in reaction to the 2011 Fukushima incident. On the other hand, the necessary grid expansion faces setbacks. Thus, it will be crucial to move to renewables without harming the competitive German economy. Potential conflicts may arise between the green and liberal party given their very different views on the role of non-renewable energy sources.

Germany´s “social market economy” poses another challenge, as an aging population demands investment. The new government faces a dilemma over the healthcare system. A departure from the two-tier system (private and statutory) towards universal healthcare was discussed during the campaign and is favored by the green party, a change the FDP and CDU/CSU are strictly opposed to. Two other challenging areas for the years to come are education, where investments are urgent, and the shortage of skilled labor.

Investments seem to be a central topic for the next term, given Merkel´s fiscal policy of budgetary consolidation, neglecting necessary investments in the areas of education, the healthcare and pension system, as well as defense, to name just a few. The Greens and the CDU/CSU hold conflicting positions on defense spending.

Finally, a potential “Jamaica-coalition” must deal with many challenges in the field of foreign policy. Although the four involved parties (CDU/CSU, FDP, B90/Grüne) are in principle pro-European, the liberals stress the fiscal self-responsibility of the EU member states. This not only clashes with the positions held by the Greens and CDU/CSU, but also with the governments in Athens and Paris. Furthermore, a stricter stance towards Turkey can be expected, not least because the conservative union is under increasing pressure from the right-wing parliamentary opposition.

Finally, no matter the composition of the new government, the next term holds some urgent challenges which will decide Germany´s economic and societal perspectives for the decade to come.

Authors: Martin Becker, Deputy Head of Office Berlin, and Gregor Schreiber, Director Public Affairs

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