Rippling Effects of the German Political Stalemate

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By Kenji Hosokawa
Italy, December 21, 2017

The recent failure of Merkel’s CDU (Christian Democratic Union) to achieve a grand coalition between the Green party and the Free Democrats has resulted in a political stalemate within Germany. Merkel now has been forced to turn towards her political rivals the SPD (Social democrats) in order to avoid forming a German minority government, which would be the first of its kind since the end of World War 2. This continuous internal gridlock has placed Merkel’s leadership within her own country into question and has cast doubt on Germany’s role as the political leader within the European Union.  

Germany has been seen as the pillar of European stability for decades and has had great sway throughout the continent, with its Chancellor Angela Merkel at the helm for the last twelve years. The German leadership of Angela Merkel has been established as paramount in establishing European policy through various crises such as the financial crisis of 2008, the following bankruptcies of various European countries such as Greece and Spain, and more recently the current migrant crisis sweeping through Europe. The seemingly iron cast role of Merkel as German chancellor and the defacto European political leader has recently been challenged due to the current German political crisis, that threatens to remove her from her chancellorship and impede current EU economic and financial reforms indefinitely.

Merkel’s role as chancellor lies in her ability to reach a coalition with the SPD party leader Martin Schulz, who agreed this week to begin talks in order to form a majority government by early 2018. Schultz is a former European Parliament President, who began his career in German politics last year and seemed poised to take down the veteran Chancellor. However Schultz’s inability to cement his budding leadership led the SPD to score ‘just under 21 percent, its worse showing since World War II’ in the September 24 general election, and provided the opportunity for the ‘far-right Alternative for Germany (AfD) protest party to siphon off millions of voters from all mainstream parties’ according to the Economic Times.

The AfD could gain an even bigger boost if the coalition fails, as the German President Frank-Walter Steinmeier would have to call for a February snap election for the first time in German history. The election could have potentially devastating effects for both Merkel’s CDU and Schultz’s SDP as according to Quartz media, the continuing political deadlock would provide the far right AfD the opportunity to ‘capitalize on the political chaos’ and to solidify its position as the ‘first far-right party in the Bundestag since World War 2’. Outside of presenting the AfD an increasingly favorable position, the German political stalemate has led to a deterioration of global confidence in the European community as a whole. According to Volker Kauder, a senior Merkel ally ‘the economically strongest country in Europe cannot show itself as a political dwarf’, signifying that the German political debate needs to be resolved otherwise leading to devastating effects on the entire continent.

The political instability has already rippled out throughout the world, as according to the Guardian after the news of the failure in coalition talks the euro has lost ‘0.3% against the US dollar, to $1.176’ as well as slipped ‘against the pound, which is up 0.6% at €1.127’. Outside of currencies, the German stalemate has affected views on the stability of the European Union, specifically on the success of reforms on the eurozone, debt sharing, and establishing a European Union finance minister. According to Wolfgang Bauer a fixed income fund manager at  M&G Investments, the political crisis could fuel ‘market volatility increase due to rising political uncertainty in Europe’s economic powerhouse’  and place ‘major European integration projects’ to ‘be pushed forward for the foreseeable future.

In the University of Bologna seminar, ‘Angela Merkel’s Germany and the future of Europe’ Alessandro Merli, the Frankfurt correspondent for the Italian national daily business newspaper Il Sole 24 Ore elaborated on how the German political disarray has impacted the future of European banking and financial reforms. The journalist emphasized the importance of the previous collaboration between Merkel’s German and Macron’s French government in pushing for this legislation within the EU, as implementing a ‘banking union system will face great challenges due to every nation in the EU having their own system and own funds separately’. The establishment of a singular EU monetary fund would be critical during future economic crises, as it would ‘avoid nations singularly pursuing their own monetary interests’ and organize uniform economic policy during tumultuous times. Merli then discussed how the current contentious climate within German politics has deeply impacted the ‘reforms in the area of the Euro’ as the reforms now potentially rest in the hands of ‘balancing powers outside of the Eurozone’. The political turmoil within Germany has cast doubt on Merkel’s previously indisputable role as leader of the European Union, impacting not only current European markets but the future economic stability of the continent.

As of December 10th Merkel is continuing coalition discussions with the SPD party leader Schultz, in order to avoid furthering the political stalemate and increasing the AfD’s grasp on the Bundestag. Merkel commented on the situation stating ‘I am not exaggerating when I say that the world is waiting for us to be able to act’. Schultz has realized the importance of ending the political deadlock and has continued to engage in coalition talks. Schultz has continually stressed the importance of open-ended discussions and the possibility of supporting a potential conservative minority government in the case that his SPD party members fail to endorse a coalition deal. The continuing political disharmony has bled into the most recent EU summit meetings, as according to the New York Times with Germany now ‘unable to make to new policy, Mr. Macron and the commission cannot get a considered response, blocking progress.’ Macron also commented on the current German political deadlock and the constraints that it places on the summit adding, ‘we need a strong and stable German government to move forward.’ The obstruction caused by the current German government has impeded the ability for the European Summit to go forward with Eurozone reforms, with the possibility for any serious change resting squarely on Merkel’s shoulders.

Kenji Hosokawa
-European Correspondent for TransAtlantic Magazine, Citizen of U.S., Japan, Italy
-Political Science and Italian Student at UW-Madison

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