The Europe Question Will Coalition Mean End of Austerity Angie?

Angela Merkel clearly won Sunday's German election, but she will need a coalition partner. Many in Europe are hoping an alliance with the center-left Social Democrats would mean a change in the chancellor's harsh austerity policies. Those hopes may be dashed.
All eyes in Europe were on German Chancellor Angela Merkel on Monday.

All eyes in Europe were on German Chancellor Angela Merkel on Monday.

Foto: Juan Carlos Hidalgo/ dpa

French President François Hollande didn't exactly sound euphoric as he delivered his statement on Sunday evening on Chancellor Angela Merkel's resounding victory in the German general election. He said tepidly that he hoped for a continuation of "our close cooperation in the challenge of constructing Europe." He then invited Merkel to visit Paris once she completes the process of assembling a coalition government.

He likely wasn't the only one in the euro zone who was looking to Berlin with some trepidation on Sunday night as the results came rolling in. Many in Southern European countries had been hoping that the center-left Social Democrats (SPD) would somehow manage to unseat the chancellor. Now that she has been re-elected, there is fear that she will continue to push the kinds of harsh austerity programs that have created so much misery in euro-zone countries that have been hit hardest by the crisis.

But will she? Merkel may have guided her conservatives  to their strongest result since 1990, but she also lost her coalition partner, the Free Democrats , who failed to achieve the 5 percent threshold  necessary for representation in parliament. In all likelihood, it is the SPD who will replace them -- exactly the party upon which many struggling European countries had been pinning their hopes.


Photo Gallery: The German Election in Numbers

For now, the SPD is playing hard to get . Several leading Social Democrats on Monday have indicated that the desire to join Merkel as her junior coalition partner -- in a constellation known as a "grand coalition" -- is limited at best.

"I am strictly against a grand coalition," Axel Schäfer, European policy spokesman for the SPD in parliament, told SPIEGEL ONLINE. "There is a fundamental difference between Frau Merkel and us." He noted that whereas the Social Democrats prefer boosting the powers of European Parliament, Merkel is more interested in ensuring that power remains with the individual member states. Schäfer said his party would not allow "summit negotiations behind closed doors to replace parliamentary democracy."

Impossible to Predict

Merkel too has not begun to strike conciliatory notes. At a Monday press conference, she said "the process of reforms isn't just a process of austerity, but of competitiveness, solid budgets, it's about the confidence of investors in our countries. I think we have achieved a lot on this path, but we're not finished yet, and that's why this election allows me to continue my European policy to this end."

Of course, it is impossible to predict how willing to compromise Merkel or her potential coalition partners will be on the issues. Merkel's power at the moment is difficult to overestimate and her conservatives beat the SPD by almost 16 percentage points. But she still needs to assemble a parliamentary majority and will have to make concessions to do so.

Still, foreign policy observers are skeptical that Germany will recalibrate its approach to the euro crisis. "I always thought that the expectation that we would have a complete change in policy if there were an SPD-Green Party coalition was totally overrated," Daniela Schwarzer, head of the EU integration division at the German Institute for International and Security Affairs, told SPIEGEL ONLINE. "Even if the SPD had become the biggest party in a coalition, it would still face many of the constraints facing Merkel."

The list Schwarzer points to is long. Most challenging, however, is that Merkel has had to balance her government's support for emergency rescue measures with a significant level of skepticism in Germany regarding the use of taxpayer money to bail out profligate Southern European countries.

If anything, Schwarzer believes that, with the rise of the euroskeptic party Alternative for Germany  (AfD), that balancing act will become more difficult, even if the AfD didn't manage to win seats in parliament. The next government, she says, "will have to be careful. We have the elections for the European Parliament coming up" in 2014.

Turning Up the Criticism

In the past, the CDU and SPD have voted together to approve bailouts to euro-zone countries, but when it comes to policies, there are fundamental philosophical differences that could serve as significant barriers for any grand coalition. For example, the conservatives have called for a "stability union" within the euro zone -- one that would be neither a debt union nor a transfer union.

But the SPD wants a common "economic government" that would bring together fiscal and economic policies and would include close coordination but also joint liability for programs like a debt repayment fund that would involve shared EU lending as a way of reducing national debts and interest rates. Another platform in the SPD party program calls for the "impetus" for sustainable growth in the EU through a program that would oblige countries to maintain solid finances, but would also be complemented by stimulus that would come from an asset tax the party is proposing. All this would be flanked by a "social union" guaranteeing further social and labor rights across the EU.

The SPD turned up its criticism of Merkel's euro-zone policies during the campaign. And they added a new one: SPD chancellor candidate Peer Steinbrück never tired of blasting Merkel for what he has said is a lack of forthrightness  regarding the true costs to Germany of saving the euro.

Schäfer echoed that criticism on Monday. Referring to his party's proposal of a debt repayment fund to help euro-zone member states ease their burden, he said: "The CDU has made certain terms taboo because they don't want to tell voters the truth about the steps needed to overcome the crisis. They rule things out because they don't want to create the impression they will cost anything. But everything in life costs something."

Translating to the Issues

That, in fact, might be the central lesson that the German election and the upcoming coalition negotiations will teach us. Parties that have formed coalitions with Merkel in the past have not tended to fare well. Following four years in an alliance with Merkel, the SPD in 2009 lost 11.2 percentage points compared to its previous vote. The same fate befell the FDP on Sunday.

"Merkel will have to pay a much higher price because no one is willing to get destroyed by her," Olaf Böhnke, head of the Berlin office for the European Council on Foreign Relations, told SPIEGEL ONLINE. "This could be translated over to issues."

In other words, SPD participation in Merkel's government could very mean the conservatives will have to shift slightly on some of the issues. "I think that what you are most likely going to see is that the SPD will push on some of the issues, but that there will be quite a bit of push back from the conservatives in the CDU and from the CSU," the Bavarian sister party to the CDU, said Fabian Zuleeg of the Brussels-based European Policy Center. "Essentially, that puts Merkel in a position she is comfortable with: in the middle. But she will have to move a little."

But will she move enough? All has been quiet on the euro-crisis front for several months now. Much of that has to do with European Central Bank pledges to do whatever it takes to calm the markets and keep the common currency intact. In addition, though, Germany's election campaign put a temporary stop to several ongoing debates about Europe's future.

No matter what her governing coalition ultimately looks like, Merkel's leadership position in both Germany and Europe has been solidified. And that, says Schwarzer from the German Institute for International and Security Affairs, brings a certain degree of responsibility along with it.

"We must be more up front about the situation," she says. "There is a calm in the market right now" thanks to the ECB. "But banking union isn't complete. Political union isn't complete. We don't have fully functioning control mechanisms. There has been no agreement on a euro-area budget and there is the whole problem of democratic legitimacy. There is a huge task here."

"If the German government wants to tidy up the situation," she adds, "this means you really have to lead on the subject." With the SPD at her side, Merkel may be able to do just that.