Germany's Fate The Dispiriting Prospect of a New Grand Coalition
Part 2: The Bad, Worse and Worst Options Facing the SPD
New elections? The crowd groaned. Minority government? "Then the conservatives would control all of the ministries," one of those present called out. Grand coalition? "Never," said a pensioner. "Then we'd be at 15 percent in four years." Heil furrowed his brow. "I'm really looking forward to Christmas," he said.
No matter where you look theses days, the SPD is consumed by a combination of despair and helplessness. All options available to the party are terrible, the election results were traumatizing, party leadership is at odds with each other and Martin Schulz looks as though he is in over his head. The entire party needs therapy. Instead, though, a party congress is rapidly approaching next week at which the SPD is to decide whether it should join a grand coalition or not.
For Schulz, the congress promises to be particularly difficult. Initially, he had hoped to digest and process the election results, be re-elected as party chair and then lead the SPD in opposition for the next four years. Now, he is in the process of executing the kind of about-face the country has rarely seen before.
Schulz managed to change his stance on the grand coalition within just a few days. Suddenly, despite vehemently rejecting an alliance with the conservatives immediately after the election results came in and again after Merkel's initial coalition talks collapsed, he sees it as a possibility. He has repeatedly said in recent days that Germany needs "reliability and stability" and now hopes to use the upcoming party congress to obtain a mandate for coalition talks with the conservatives. German President Frank-Walter Steinmeier has made it clear that he would like to avoid new elections, and Schulz himself sees an opportunity to reform Europe.
"Dear Martin," Greek Prime Minister Alexis Tsipras recently texted him. "I respect your original decision to not be part of the government and I understand the reasons. But recent developments have shown that without the SPD in the German government, the political aspirations we share are endangered at a sensitive time for Europe." It was a welcome message for Schulz. If the leftist Tsipras wants the SPD to go into government, after all, then it can't be such a bad idea.
Schulz is likely to be granted a stable majority at the party congress. Everyone knows that if he were to receive tepid backing, his wings would be clipped in the upcoming negotiations with the conservatives. And that is in nobody's interests.
The SPD head also surely realizes that a grand coalition would have advantages for him on a personal level. Were new elections to be called, it is hard to imagine Schulz being the party's chancellor candidate again - which would also mean that he would lose his position as party leader before too long. The grand coalition, in other words, could save his political career. But can it work?
A grand coalition would certainly be advantageous to the Social Democrats on many levels. The party would be part of shaping the country's future and wouldn't have to while away the next four years in opposition. On the other hand, the party had been hoping to use the next four years for renewal, and that is now at risk. Far-reaching social reforms of the kind that Schulz and Andrea Nahles, the party's floor leader, would like to pursue wouldn't be possible in an alliance with the CDU and CSU. And the role the SPD has hoped to play, as a critic of digital capitalism, won't be easy in partnership with Merkel.
Everyone in SPD leadership knows that fashioning a new agreement with Merkel won't be nearly as simple this time around as it was in 2013. Back then, the chancellor was at the height of her powers, but now many Social Democrats hope they might be able to sweep her from office by rejecting a grand coalition. Back then, the SPD had an important project to pursue, the introduction of the minimum wage, whereas today it has no ambitious agenda. And most importantly: then-SPD head Sigmar Gabriel proved himself to be an excellent tactician when negotiating the coalition with Merkel in 2013. The same cannot be said of Schulz and the rest of the party leadership this time around.
Many Social Democrats were horrified when party leadership ruled out a grand coalition immediately after Merkel's talks with the FDP and Greens fell apart, only to reverse course a short time later. Schulz had hoped his quick response would be read as a demonstration of tough leadership, but it produced the opposite impression. "That was a mistake of the entire party leadership," said deputy SPD leader Thorsten Schäfer-Gümbel at the leadership committee's most recent meeting. Nobody contradicted him.
Now, Schulz wants to proceed with care. First talks, then preliminary negotiations, that is his plan. Should formal coalition negotiations then result, he plans to have the party vote on the results.
But the party leadership's zig-zag course has led to growing opposition to a grand coalition within the SPD - which as raised its political price. Indeed, party leadership could produce a list of demands as early as Monday. It looks as though the Social Democrats will insist on increased spending for education, on investments in old-age care and on limitations for temporary employment contracts. Such demands aren't likely to run into significant opposition from the conservatives, but they also aren't likely to be enough to win over the grassroots.
Many in the party have more ambitious aspirations, particularly those from North Rhine-Westphalia. They are insisting on a more confrontational approach, demanding higher pensions and a health-care reform program that would eliminate private insurance. Such proposals are appealing to grassroots SPD voters, but opposition from conservatives would likely be so great that it would make a grand coalition impossible. If Schulz wants to form a governing alliance, he will have to find a way to bridge the gap.
What's Next for the CSU?
For a brief moment, it almost looked as though a peaceful solution to the Christian Social Union's (CSU) leadership battle was emerging - as though party head Horst Seehofer would be able to find his own successor and Merkel would be able to go into negotiations with the SPD with peace of mind regarding her vital partners in the CSU. That illusion, though, lasted for about an hour. Then, it became clear that Bavarian public radio had been misinformed.
The station had reported last Tuesday that Seehofer was recommending that Markus Söder take his place as governor of Bavaria, allowing Seehofer to remain party chair. But as quickly became clear, the news wasn't quite ready for prime time and the leadership battle, which has seen a concerted movement from within the CSU to depose Seehofer, isn't yet over.
For Merkel, the initial report had provided a brief moment of hope, however fleeting it proved to be, that Seehofer would retain his tight grip on the CSU. To be sure, her battle with Seehofer on the refugee question had almost destroyed the two parties' decades-old alliance. But ever since they reached a compromise on an upper limit on refugees, and ever since they both received a comeuppance in the general election in September, Seehofer has been one of the chancellor's strongest supporters. Without him, Merkel never would have been able to reach agreement with the Green Party during her first attempt at assembling a coalition - negotiations that ultimately failed when the FDP backed out. In the fight for the grand coalition, Seehofer is again an important ally.
But after the CSU's poor performance in the general election, his position as party head has become untenable. His tenure is coming to an end, but it isn't yet clear when exactly he will be replaced. Recent events have indicated that it could be a full year - until the Bavarian state elections next fall - before the CSU resolves its leadership issues.
Lot's of Money to Throw Around
There is, though, one thing that should theoretically make the assembly of a grand coalition in Germany easier. Shortly after the election, the Finance Ministry calculated that the new government would have an extra 30 billion euros to spend during the next four years without having to take on more debt. Since then, the sum has risen to 45 billion euros, after acting Finance Minister Peter Altmaier asked for a new calculation.
The higher number is partially the result of the fact that Germany's economy is growing more rapidly than assumed three months ago. And a recent survey taken by the Association of German Chambers of Commerce and Industry (DIHK) found that companies are assuming that the economic environment will remain welcoming for some time to come. Indeed, the DIHK is now forecasting growth in 2017 to be 2.3 percent, up from its original forecast of 2.0 percent - which is good news for the upcoming grand coalition negotiations. The DIHK has calculated that tax revenues between now and 2020 will be 12 billion euros more than originally anticipated.
But the problem is that, even if the amount of money available for spending is vast, the proposals pursued by the parties are even larger. Conservatives want to increase benefits for families while the SPD would like to raise pensions and increase spending on education. Both parties would also like to dramatically increase the budget for expanding the fiber-optic network, building roads and funding research.
Indeed, even if the parties climb down from their most expensive proposals in the coming weeks, it is already clear that there will hardly be any money left over to provide the kind of middle-class tax relief both political camps promised during the campaign. As has so often been the case when the two big-tent parties must come to agreement, the result is likely to be more spending rather than true reform.
Justice is always in the eye of the beholder. Those working at a private health insurance company, for example, see the newly enflamed debate about health insurance as having less to do with political fairness and more to do with personal insecurity. Ever since many Social Democrats began to demand an end to the two-tier medical system as a condition for entering another grand coalition, the workers representatives at the private insurers have been unusually busy. Many employees fear that the entire sector's business model is threatened - and with it many jobs.
On Tuesday afternoon, a dozen outraged workers councils at the biggest insurers held a crisis teleconference. In the early hours of Wednesday morning, their chairman, Peter Abend, wrote a letter to SPD head Schulz. His party's proposal for a single "citizens' insurance," Abend warned, would endanger at least 50,000 jobs in the industry. "We would be grateful if you would lend an ear to the concerns of the insurance employees."
It was only two weeks ago that the insurance sector felt secure. The FDP was promoting their interests in the coalition talks and the term "citizens insurance" no longer appeared in the draft coalition documents, not even in parentheses. Now, however, the debate of the two-tier health insurance system is back, and it's more politically charged than ever.
During the election campaign, the theme of social justice didn't help the SPD much, because the party dithered for too long, failing to come up with concrete proposals in a timely manner. Now, however, it has no choice but to push through its social agenda in order to persuade the party membership to back a return to the unpopular governing alliance. The conservatives it is clear, are going to have to pay a high price for another coalition. And they are at a tactical disadvantage, having already made significant compromises during their failed talks with the FDP and the Greens. They can't now go back on the promises they have already made.
One of those pledges was an immediate new program for old-age and patient care, which will cost 2 billion euros in 2018 - and a grand coalition would likely be even more generous. Meanwhile, the deeply divided CSU will be looking for an increase funding to its own pet project, the mothers' pension. And the SPD, which has to come up with something for its usual clientele, is pushing to keep pensions stable. In total, their plans would cost an extra 20 billion euros a year by 2030. In the worst-case scenario, Germany could see a return to the social policies of the 1980s.
Failing to Hit Climate Goals
The situation is no rosier when it comes to the climate. There's probably no one who understands the woes of the current government's climate policy as much as Rainer Baake, state secretary responsible for energy issues in the Economics Ministry. A member of the Green Party, he is a strong proponent of renewable energies and an end to power derived from coal. Despite those convictions, one of his duties, year after year, is to admit that the country will fall short of its emissions reduction goals for 2020.
It was Baake who many years ago wanted to take the brave step of removing coal-fired power stations from the grid. Yet nothing came of his plan to at least make the oldest stations unprofitable. After Hannelore Kraft, the former SPD governor of North Rhine-Westphalia, intervened with the then-Economics Minister Sigmar Gabriel, likewise of the SPD, Baake's plans were thwarted.
The episode shows where the power will lie in any new grand coalition. The traditional energy industry has influence with the CDU/CSU, while the sector's labor unions have the ear of the SPD. Even though it is clear that Germany is going to miss its climate targets unless a string of coal-fired power plants are shut down,particularly those that run on brown coal, powerful members of both the center-right and the center-left oppose taking such measures.
Meanwhile, when it comes to Europe, Schulz and Merkel speak grandly of a "new formation" and say issue is "extremely urgent." Indeed, many hope that a grand coalition could prove its worth by standing shoulder to shoulder with Emmanuel Macron when it comes to pushing ahead with the European project. The problem, however, is that the CDU and the SPD differences over Europe are far greater than they might first appear.
Certainly, there is hardly anyone in Europe who has taken Macron's suggestions more to heart than Martin Schulz. Like the French president, he wants to see a specific budget for the euro zone, one that would help to counterbalance the economic slumps in countries that participate in the common currency. The French are asking for a budget running to the hundreds of billions of euros and the Germans would have to supply around a quarter of that.
Most in the CDU and CSU, however, want no such thing. They fear that the plan, augmented by a Eurozone finance minister, which is also among Macron's proposals, would simply mean a further distribution of German money. As such, they want to keep the figure as low as possible.
And Merkel also has a very different notion of what a Eurozone finance minister's role would be to Macron and the Social Democrats. The job would not be to distribute money to other countries to help stabilize their economies. Instead, he or she would concentrate on getting countries to stick to the rules and bring their finances in order. If needs be, the Eurozone finance minister would be able to directly intervene in the individual states' budgets. In other words, instead of becoming a source of unity, the question of Europe could become a breaking point for a new government.
Schulz, Merkel, Seehofer: Can such an alliance really become reality. For the moment, it seems unlikely. Their interests are simply too divergent. And all three of them have good reason to focus on themselves to the disadvantage of the larger coalition: Seehofer to save his skin, Merkel to find a successor and Schulz to position himself for another run at the Chancellery in four years. And none of them find themselves in positions of strength.
Indeed, it is difficult to see how such an alliance can produce an effective government. If the coming talks show that this supposedly last way out of a difficult situation damages democracy more than it helps it, then all concerned should think again. The parties should think about whether they have the right leaders, and the voters should think about what sort of constellation should lead the republic into the future.
New elections, in fact, might be the best solution after all.
By Melanie Amann, Jan Friedmann, Veit Medick, Ralf Neukirch, René Pfister, Michael Sauga, Cornelia Schmergal, Christoph Schult and Gerald Traufetter
- Part 1: The Dispiriting Prospect of a New Grand Coalition
- Part 2: The Bad, Worse and Worst Options Facing the SPD