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Wider upsets from Berlin breakdown

Wider upsets from Berlin breakdown

Variable geometry, disrupted timetables

by David Marsh in London

Mon 20 Nov 2017

The collapse of German coalition talks as a result of complex disagreements over immigration and finance is likely to disrupt interconnected timetables determining Europe's political and economic make-up over the next few years.

All the different countdowns – involving both Britain's European Union exit negotiations and plans to develop economic and monetary union – are subject to upsets, intrigue and interruptions. And, as demonstrated by the weakness of German Chancellor Angela Merkel after the inconclusive 24 September parliamentary elections, no one is in charge.

There has been much talk of Europe's 'variable geometry' as individual countries move along different paths of integration at different speeds – and sometimes in different directions. Now there will be concern about highly variable timetables, all prone to dislocation.

Merkel, who met Frank-Walter Steinmeier, the German president, on Monday to discuss next steps after Sunday night's breakdown of month-long coalition discussions, faces three difficult options.

First, she can battle on with another round of coalition talks among the four parties which won the most votes two months ago, led by her own Christian Democratic Union – even though the last four weeks have already exposed apparently unbridgeable differences between them.

Reflecting the consensus-supporting views of Steinmeier, a former Social Democrat (SPD) foreign minister who is new to the job of largely honorific head of state, further coalition negotiations, with greater pressure to achieve compromises, still seem the most probable outcome. This would be in line with those observers who say the necessary drama of coalition-building is part of the ritual theatre of reaching a solution. It cannot be excluded that Steinmeier will persuade his party to join talks with Merkel on a new 'grand coalition' – even though the SPD ruled this option out at the weekend.

However, Sunday night's walk-out shortly before midnight by the liberal Free Democratic Party, traditionally the CDU's prized partners, has set a high hurdle for continuation of talks. Christian Lindner, the FDP leader, irked by significant discord with the Green ecology party, said it was better not to govern at all than to govern 'wrongly' – eerily echoing the views of some UK Brexiteers who say 'no deal is better than a bad deal' in Britain's bargaining over leaving the EU.

The second option facing Merkel can come only with Steinmeier's blessing, when other means have failed. The chancellor – who remains at the helm of the continuing 2013-17 coalition between the CDU, the Bavarian Christian Social Union sister party and the SPD – can form a new administration between the CDU/CSU and the Greens or the FDP.

This would be an unstable minority government, buffeted by a polarised parliament, which would depend partly on SPD support to remain in office.

Third, Steinmeier and Merkel could reluctantly agree to new elections early next year. The fear among the established German parties – whose voting scores shrunk to a post-war low on 24 September – is that they would face further attrition from the far-left and far-right, especially the anti-immigration, anti-euro Alternative for Germany, now a restive force in parliament with 92 seats.

Merkel's biggest problem is that she has no anointed successor for when she eventually steps down. For most observers, that time has now drawn a lot closer. Further, her experience of crushing junior coalition partners – both the SPD and FDP – in 12 years of Berlin coalitions makes all parties extremely wary of the conditions for a future alliance.

The rest of Europe would like to see Germany establish a functioning new government by the Brussels summit on 14-15 December — even though this seems now barely possible. The meeting is scheduled to decide whether the UK has done enough to pass through to the second, more constructive phase of exit talks. Absence of a new German government by then would both weaken Germany's negotiating hand and slow down further the momentum of the Brexit process, to the discomfiture of industry and finance on both sides of the English Channel.

Another set of delicate interactions focuses on action which members of the euro area must take in the next year to build further political and economic integration and underpin the single currency's longer-term future. French President Emmanuel Macron wishes to push the euro area towards a more federal system, in line with the ambitions of the single currency's founders, with a European finance ministry, treasury and budget. Both Germany and France want further steps to complete the banking union, but disagree on the details.

France is increasing efforts to win German trust in Macron's plans. Just one of the frustrations in Paris is that Macron is still waiting to know the identity of his sought-after German partners in European transformation.

David Marsh is Managing Director of OMFIF.

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