20.11.2017 - “Jamaica negotiations” in Germany failed

non-periodical

 

The exploratory talks regarding a “Jamaica coalition” (a coalition of the CDU/CSU, the FDP, and the Green Party) in Germany have failed. Shortly before midnight, the FDP[1] declared the talks with the CDU[2]/CSU[3] and the Green Party a failure after five weeks of negotiations. Apparently, the differences between the parties, particularly the Green Party and the CSU as well as the FDP, with regard to climate protection and refugee policy turned out to be irreconcilable.

There are four options for further action now:

 

1.    Federal President Frank-Walter Steinmeier appeals to the four parties to resume their negotiations once again and the “Jamaica coalition” is achieved in the end. However, we consider this to be rather unlikely as the relations between the Greens and the FDP in particular seem to be poisoned following the failed negotiations.

2.    The SPD[4] declares its willingness to enter into a grand coalition with the CDU/CSU after all despite its many protestations to the contrary. In our opinion, this is even less likely than the formation of a “Jamaica coalition”. Following the Bundestag elections, the SPD categorically ruled out the possibility of government participation in the form of a grand coalition. This was confirmed once again last night. There could be a certain residual probability in case chancellor Angela Merkel resigns from office and clears the way for a successor.

3.    The CDU/CSU could try to form a minority government with the FDP – something which has never existed in the history of the Federal Republic. From our point of view, however, the main argument against this option lies in the fact that such a government would probably depend on the votes of the right-wing populist AfD[5] in case of important decisions. Both the CDU/CSU and the FDP strictly excluded the possibility of working with the AfD following the elections. Furthermore, a minority government could rule only with the handbrake on, so to say, as it would never know beforehand whether it would obtain enough votes for a legislative proposal in the end. Considering that Angela Merkel has already expressed her discomfort regarding a minority government as well, we assume that this result is also unlikely. In the event that such a government is formed after all, it can be assumed with a probability that borders on certainty that it would not last for a whole legislative period of four years.

4.    The fourth possibility – in our opinion, the most likely one – is new elections. The obstacles for new elections are very high in Germany due to the Basic Law. In the present political constellation, the prerequisite for new elections is a chancellor’s election in the Bundestag in which no candidate obtains an absolute majority within three ballots. In this case, it is the Federal President’s turn to decide whether to either entrust the candidate who has a simple majority with the formation of a government – which would equal a minority government – or to call new elections which then have to take place within the next 60 days.

The problem with new elections is that according to the latest polls, the election result would hardly differ from the last one – which means that the problem would remain the same.

 

Chancellor Angela Merkel is clearly the biggest loser of the failed “Jamaica negotiations”. She wanted this coalition at all costs and could not make it happen. The current government under Mrs Merkel remains in office for as long as it takes to form a new government. The Basic Law does not provide for a time limit. Should the present situation result in new elections, however, Angela Merkel would enter into these seriously battered. Until a new and stable government has been formed, Germany faces a standstill both domestically and in foreign policy. This ought to be reflected in European politics in particular. Without a government capable of action in the EU’s biggest economy, it should to be hard to get anything done. The desired thrust towards a modernisation of the EU, or the formation of a kind of “core Europe” – which takes the lead in important questions – via the Franco-German axis is on hold for now.

In our opinion, the economic consequences of a longer political impasse are insignificant. The German economy is currently in full swing and a prolonged formation of government or new elections are not going to change this. Furthermore, the euro area does not face a critical situation such as in the years 2011 and 2012 at the moment which would make a government capable of action absolutely necessary. In the worst case, a slight short-term damper will be put on certain sentiment indicators. When it comes to the “hard” data, though, we expect no consequences.

We assume that the anticipated prolonged formation of government will have no long-term negative impact on the financial markets, either. While the leading European stock exchanges started this trading day markedly weaker, we do not believe that the stock exchanges will face a damper in the long term: the strong economic momentum in Germany and the euro area – likely to be confirmed once again by strong purchasing managers’ indices this week – is currently not dependent on a German government capable of taking fast action. Against this background, the markets are able to digest even the prospect of potential new elections at the beginning of next year. From the companies’ point of view, this may even be better than a poor compromise in the medium term. The same is true for the euro which has already recovered from its losses against the dollar suffered in Asian trading.

[1] Freie Demokratische Partei, Liberals

[2] Christlich Demokratische Union Deutschlands, Conservatives

[3] Christlich-Soziale Union in Bayern, Conservatives from Bavaria

[4] Sozialdemokratische Partei Deutschlands, Socialists

[5] Alternative für Deutschland, right-wing Nationalists

 

Financial analyst

Jörg ANGELE , CIIA

joerg.angele@rbinternational.com

 

Editor

Patrick KRIZAN

patrick.krizan@rbinternational.com

 

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