Observations from the General Elections in Germany

On 26^th September, Germany voted in its federal elections with a high participation rate of 76,6%. The centre-left Social Democratic Party (SPD) took the largest share of the vote (25,7%) and will be the largest party in the new Bundestag, narrowly beating the centre-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU) into second place (which suffered a historical loss, reaching its lowest score (24,1%)).

What does this mean?

With two traditional people’s parties reaching each only around 25% of the votes, the power has shifted to the next line of parties as potential “king makers”: the Greens (Grüne with 14,8%) and the Liberals (FDP with 11,5% of the votes). Both already started to organise pre-exploratory discussions with the strongly weakened CDU/CSU and SPD. Traditionally the largest party, in this case the Social Democrats (SPD), is tasked with coalition building discussions.

What are the most likely coalition options?

Two coalition options are currently on the table:

• “Traffic Light” coalition with the Social Democrats, Liberals and Greens;
• “Jamaica” coalition with the Christian Democrats, Greens and Liberals.

Another potential solution could be the revival of the grand coalition between CDU/CSU and SPD, although it is very unlikely as it would leave the Christian Democrats without the Chancellor position and could further strengthen the opposition.

Both main parties, SPD and the Christian Democrats, are running coalition talks in parallel. The Greens tend to be closer to the SPD, while the FDP have historically closer ties to the CDU/CSU. Whoever leads the next government would in any case need to persuade both, the Greens and the FDP to enter a coalition.

The strength of the Greens and Liberals is coupled with substantial weaknesses of the people’s parties. The historical loss of the Christian Democrats has triggered heavy debates within the party around their candidate, Armin Laschet, and how to go forward, including a complete overhaul while being in opposition. The Social Democrats chancellor candidate, Olaf Scholz, faces a challenging environment within the party like the influential and quite left-wing young socialists, representing around 24% of SPD seats in the Bundestag. Further developments within the two main parties are highly unpredictable.

What could influence the timeline?

As long as both options of a „Traffic Light“ or a „Jamaica“ coalition are on the table the Greens and Liberals can jointly keep a power balance towards the people’s parties. It will, according to the Liberals and Greens, depend on agreements of factual positions first, and only then in a second step on positions within the government. The aim is to finalize the coalition talks in October and to form a government before Christmas 2021.

There are two other external factors that may put pressure on the negotiations to form a new government. First, France is taking over the EU Council Presidency in the first half of 2022 and ongoing coalition talks during this period would weaken Germany’s position on the European Union stage. Then, the Presidential elections of Germany must take place before mid-February and might actually be used as an argument or trading cart in negotiation talks.

Would there be a shift in the new Government’s positions?

It is quite clear that environmental and digital policies are gaining momentum and will weight in future policy making. It is also likely that there will be an overhaul of the country’s infrastructure and other important issues around the fundamental demographic change. The debate will probably remain around prioritization based on agreed financial capabilities balancing out social issues and the liberty for companies to prosper and innovate. All in all, it should remain a government based on rationality.