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Letter from Berlin

Free Market Party on the Rise in Germany

By Charles Hawley

At first glance, it may seem like a contradiction: Despite a deepening economic crisis and growing anger at corporate greed, Germany's free market FDP party has been rising in the polls. The upswing may not last long.

By the time Germany's second stimulus package received the final stamp of legislative approval last Friday, it was no longer news. Chancellor Angela Merkel's cabinet had given the initial go-ahead. And the lower house of parliament in Berlin, the Bundestag, had followed her lead.

When it came to Germany's upper house of parliament, the Bundesrat, the decisive moment actually came days before last Friday's vote. Normally seen as little more than a formality, the body's approval was far from assured until the middle of last week. And the reason for the nail-biter can be found in an unexpected place.

With the economy in a shambles, financial markets frozen and capitalists in disrepute, Germany's neo-liberal political party, the Free Democrats (FDP), are enjoying remarkable success in both the polls and the voting booth. Its newfound self-confidence combined with double-digit survey results could shake up Germany's political landscape ahead of national elections scheduled for the end of September.

The first indication that the business-friendly FDP was on the upswing came in the state of Hesse, home to Germany's financial center Frankfurt. In late January state elections, the FDP raked in 16.2 percent of the vote, much higher than what the party normally receives. The success landed the FDP in the state's governing coalition -- and handed it enough leverage to block legislation in the Bundesrat.

The party ultimately decided to sign on to the €50 billion stimulus package last week. But even as it changed course, the liberals managed to fill the headlines with its anti-tax, pro-markets message -- the same one it has been delivering for years.

Indeed, say analysts, it is the party's consistency which may now be boosting its image. While the political course being charted by both Merkel's CDU and by her coalition partners from the Social Democrats (SPD) have been varying widely as the government attempts to come to terms with the financial and economic crises, FDP leader Guido Westerwelle hasn't had to budge.

"The FDP has had the great good luck that they aren't currently part of the federal government and they haven't been associated with the crisis," Dietmar Herz, a professor of political science at Erfurt University, told SPIEGEL ONLINE. "Partially as a result, the party has been able to develop an image of economic expertise."

The recent rise of Westerwelle and his followers has been one of degree. The FDP has long occupied a prominent place in Germany's party landscape, having been the junior coalition patner in national governments for 42 of the 60 years since post-war Germany was founded. Currently, the party is the junior coalition partner in five of Germany's 16 state governments.

In continental Europe, of course, free-market liberalism of the kind espoused by the FDP is quite a bit less cutthroat than in the US or Great Britain. And the FDP has always been careful to emphasize it's support for Germany's social-market economy.

Germany remains deeply skeptical of deregulation and pure capitalism. The Social Democrats have long struck populist chords on the economy, calling private equity firms "locusts" earlier this decade and urging cuts to CEO salaries and bonuses more recently. Indeed, in the 2005 general elections, even as Merkel's CDU came out on top, the left side of Germany's political spectrum ended up with over 50 percent of the vote.

Lately, though, with several German banks and companies struggling to survive, Merkel too has had to move further away from free market teachings. The CDU has never been truly laissez faire when it comes to the economy, but recent government moves to partially nationalize struggling banks, forcibly expropriate shareholders of Hypo Real Estate and prop up ailing German automobile manufacturer Opel have many in the party's conservative wing worried.

"There is a growing feeling that there is a lack of competence on the economy in the CDU," Herz says. "In these times of economic crisis, the CDU has moved left, meaning that many market liberals in the party have moved over to the FDP."

Such a shift may not bode well for Merkel in her bid for re-election this year. The CDU has made no secret of the fact that it would like to govern in a coalition with the FDP following this year's elections. Merkel's party, however, has been stagnating at around 35 percent support. There have been times in recent weeks when the two together have topped the 50 percent mark necessary to support a governing coalition. More often, however, their support total has been lower.

Still, the economic downturn has not brought any increased support to Germany's left-leaning parties either. The Social Democrats are still struggling to reverse years of disappearing support, the Green Party has stagnated at around 10 percent in national polls and, perhaps most surprising, the anti-capitalist Left Party has failed to capitalize on growing anti-capitalist sentiment in the country.

Indeed, as difficult as political forecasts are in this year of electoral and economic turbulence, it looks as though, the FDP rise notwithstanding, Germany might be headed for a repeat of Merkel's coalition with the Social Democrats.

That, at least, is what political scientist Herz thinks is the most likely outcome. "The effects of the crisis will soon make themselves felt even more and people will begin to question FDP positions," he says. "It will become difficult for them to promote lower taxes in a period of ballooning public debt."

Westerwelle and the rest of his party, though, have been doing their best to portray the current crisis as a failure of government rather than a failure of the markets. The US government, so goes the message, is to be blamed for the real-estate quagmire in America, not the market. Furthermore, as seen prior to the party's about-face on the stimulus package last week, the FDP has been consistently attacking the government, saying its response to the growing economic storm has been inadequate.

A recent survey found that, when it comes to the anti-recession measures so far taken by Berlin, many Germans agree. Only 36 percent of the 1,000 surveyed backed the €50 billion plan passed last week. But that's where the good news ends for the FDP. The survey included a fictional stimulus package crammed full of measures such as raising the minimum wage, upping welfare payments and boosting pensions -- all things the FDP cannot abide.

Fully 48 percent of Germans supported the imaginary measures.