Merkel clinches it, but the price is high

Oct 12th 2005
From The Economist Global Agenda

Germany's two largest parties have agreed to form a “grand coalition” led by Angela Merkel. But Gerhard Schröder's party has got its hands on several key ministries as the price of his giving way

LATE last week, Germans were still bracing for a long-drawn-out game of political poker. Chancellor Gerhard Schröder’s fate would be the central question in tortuous talks to form a “grand coalition” after the Christian Democrats (CDU) won an additional seat in by-elections in Dresden on October 2nd. The chancellor’s Social Democrats (SPD) intended to use him to extract as much as possible in terms of policy and positions from the other side, while the CDU and its Bavarian sister party, the Christian Social Union (CSU), didn’t even want to start real negotiations until Mr Schröder was pushed aside and the SPD accepted Angela Merkel, the opposition leader, as the new chancellor.

Yet over the weekend, things moved more quickly than many had predicted, and on Monday October 10th the CDU/CSU and the SPD reached a power-sharing deal that will end Mr Schröder’s seven years in office. Ms Merkel will become not just Germany’s first woman chancellor, but its first chancellor from eastern Germany—crowning a breathtaking political career that began only 15 years ago, after Germany’s unification. This deal puts an end to a three-week deadlock that was the result of an inconclusive election on September 18th, when the governing SPD/Green coalition lost its majority and the opposition failed to win one of its own. After both the CDU/CSU and the SPD had failed to build coalitions with the Greens and the Free Democrats (FDP), a grand coalition became the most likely outcome.

The agreement also concludes one of the stranger episodes in Germany’s post-war politics: that of a chancellor having just lost an election, but claiming that he was the only one capable of forming a stable government. Mr Schröder must have known that it was going to be difficult to hold on to his chancellorship, even after the SPD had done much better that expected in the poll, for although Ms Merkel failed to win a majority for her reform agenda, the CDU and the CSU managed to form the biggest parliamentary group. Mr Schröder’s hand was further weakened when the CDU won one more seat in the Dresden vote, which had been postponed because of a candidate’s death.

Mr Schröder was thus forced to come off his high horse. He and other SPD heavyweights started signalling that he would be willing to step aside for the right price. In terms of positions, at least, the party was successful. In return for allowing Ms Merkel to become chancellor, the SPD is to get control over more ministries than the CDU, including weighty ones such as foreign affairs, finance and the ministry in charge of labour-market reform. The CDU will get, among others, the defence and interior portfolios. It is already clear that the CSU’s boss, Edmund Stoiber, will become economics minister. And an emotional Mr Schröder confirmed on Wednesday that he will play no part in the new administration, ending rumours that he might take the vice-chancellorship. Yet much still needs to be negotiated, including the details of the new government’s reform agenda. Policy talks are likely to last until mid-November.

What kind of chancellor will Ms Merkel be? One thing is already certain: she will be no German Margaret Thatcher. The comparison was always a bit far-fetched, but her standing as chancellor in a grand coalition renders it obsolete. Already weakened by a disappointing election result, she is unlikely to ever be the chancellor-president Mr Schröder became, but rather a first among equals in a collective—and possibly fractious—leadership that will include the CSU’s Mr Stoiber and his SPD counterpart, Franz Müntefering.

This means that Ms Merkel will struggle to implement the main planks of her proposed reform programme: a flat-fee health-care premium to lower non-wage labour costs, further labour-market reforms, such as loosening Germany’s strict protection against dismissal, and radical tax reform. On top of this, Germany’s dismal fiscal situation needs tackling and its federal system needs overhauling.

In foreign policy, too, there won’t be much change, at least as long as the grand coalition holds. Ms Merkel opposes full European Union membership for Turkey but will be blocked from pushing “privileged partnership” as an alternative. It is also unlikely that there will be much of a rebalancing of Germany’s foreign relations to give more priority to transatlantic relations.

Yet it would be a mistake to underestimate Ms Merkel. “If Schröder was a sprinter, Merkel is a long-distance runner,” says Wolfgang Nowak, head of the Alfred Herrhausen Society, a think-tank run by Deutsche Bank. She is considered extremely methodical, going through all the options before making a decision. Insiders call her a “learning machine”. And she has certainly learned a lot since Helmut Kohl picked her out of obscurity in 1991, not least from Mr Schröder’s often frustrated efforts to reform the economy.

Ms Merkel will need all her political skills to make a grand coalition work. And it won’t just be the warring factions within the SPD that will make her life difficult, but rivals within their own party, notably the premiers of CDU-governed states, or Länder. Some blame her for having squandered a huge lead. So far, even her most dangerous internal opponents—Christian Wulff and Roland Koch, the premiers of Lower Saxony and Hesse respectively—have stayed loyal. But this may change once Ms Merkel is chancellor, since both Mr Wulff and Mr Koch have their own designs on the job.

Will post-war Germany’s second grand coalition be a success? If history is any guide, a new marriage of elephants would neither disappoint nor over-perform. The first grand coalition, in 1966-69, worked through quite an impressive legislative agenda: emergency legislation, justice reform and Keynesian demand management (which was all the rage back then). But it also generally chose easy policy options and drove disgruntled voters into the arms of extremists or away from parliamentary politics altogether.

Yet conditions may be right for a better record this time around: Germany’s big parties are condemned to produce some results, notably lower unemployment, lest even more voters cast their ballots for smaller and even extremist parties. Much will also depend on the chemistry between the leaders of such an alliance. If the first grand coalition was a partial success, it was mainly because Karl Schiller, the SPD economics minister, and Franz Josef Strauss, the CSU finance minister, got along well.

Perhaps the government's key figures will hit it off this time around too. A first sign will be whether they manage to agree on a coherent policy framework in the weeks to come. Expectations are, by and large, not high. But, just as Germany’s economy has recently shown signs of strength, the country’s politics might just spring some positive surprises as well.

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