#GermanElection Focus: Will Angela Merkel Emerge Victorious?

2017 has already been pretty political, with elections in the Netherlands, France and the UK set to be followed up by the German Federal Election.

Taking place on September 24^th, the election will determine which party ends up running the country – although it is seen by some as a ‘one-horse race’.

On the defence is Angela Merkel, who has been German Chancellor since 2005. Merkel has served three terms in the position and is tipped to be on track for a fourth victory, but this is by no means guaranteed.

In this article, we’ll be taking a look at the major parties in the 2017 German Federal election, who’s campaigning for what and what the outcome could be.

The Defenders – CDU/CSU

The current German Government is a coalition, made up of Angela Merkel’s Christian Democratic Union (CDU), Horst Seehofer’s Christian Social Union in Bavaria (CSU) and Martin Schulz’s Social Democratic Party (SPD).

To a large extent, the centre-right CDU and CSU are joined at the hip, but the current relationship with the left-aligned SPD is effectively a marriage of convenience. This puts the CDU/CSU pairing as the main opposition to the SPD in the race to secure a majority.

Through various coalition deals, Angela Merkel has led the CDU in three German governments in a row, so to many she is considered a safe bet.

Merkel’s long tenure as Chancellor is testament to her sticking power, but she is not unblemished in German politics. In particular, during the migrant crisis in 2015, Merkel declared an ‘open-door policy’ which led to a flood of refugees into Germany.

This action garnered Merkel both praise and condemnation on national and international levels. Supporters focused on the humanitarian aspect and in February this year, Merkel received the Eugen Bolz award for her efforts. On the other side, however, Germany’s right-wing elements scorned Merkel for the move.

CDU policy in this election is to gradually tighten immigration controls, although more through enabling settlement in non-EU countries than by completely closing down borders.

When it comes to defence, Merkel’s CDU is committed to spending 2% of GDP on the area by 2024, as has already been promised to NATO.

In good news for citizens, the German budget surplus was extremely high last year, which means many party policies this year are focused on cutting taxes. For the CDU, this means a €15bn cut, although this is by no means the largest cut on offer. Tied into the budget surplus is public spending – the CDU is largely business as usual in this area, which makes parties like the SPD potentially more attractive options.

As with most things in Europe, the EU and Eurozone also factor into opinions of Merkel. The Chancellor is seen as a proponent of a more closely-integrated European Union, in conjunction with French President Emmanuel Macron.  While some welcome the prospect of a more close-knit EU, sceptics of the grand EU project object to the idea.

The Rising Reds? – SPD

While the Social Democratic Party (SPD) have been in the governing coalition since 2013, Martin Schulz’s party is looking to break free of the current arrangement and lead Germany on its own terms.

Schulz has been President of the European Parliament twice but only became leader of the SPD in early 2017. While Schulz and the SPD received a surge of popularity earlier in the year, the momentum has since faded.

That leaves the SPD’s policies in focus. As Germany’s main centre-left party, the SPD are looking to adjust immigration rules by implementing a point-based system, as is used in countries like Australia and Canada.

Defence is one of the main divergent issues for Germany’s parties, as while the CDU want higher spending, the SPD are looking to slow the pace of defence spending.

Tax-wise, the SPD plan is to squeeze more out of Germany’s highest earners by raising the top rate of income tax from 42% to 45%. Notably, the SPD, CDU and FDP are all aiming to get rid of a surcharge tax from the 1990’s, which would equate to a national tax cut in the area of several billions.

The SPD plans to put Germany’s heaving budget surplus to good use, spending €30bn over four years on key areas such as transport links, hospitals and schools.

With regards to the overall EU, the SPD are looking to go a step further than the CDU and balance the disparate conditions across EU members.

Radical Kingmakers? – The Left

The Left party (known as Die Linke in Germany) are, as their name suggests, firmly aligned with left-wing German politics.

Based on polling figures, this stance could see Die Linke lose votes to more centrally aligned parties, but the Left may still play a key part in making up the next government.

Die Linke has co-leadership, made up of Sahra Wagenknecht and Dietmar Bartsch.

In-keeping with their overall ethos, the Left party aim to reach out when it comes to Germany’s borders, opening doors to asylum seekers and providing all refugees with the right to settle in the country.

The Left are also pushing for active disarmament, cuts in defence spending and no further foreign military operations being conducted by NATO.

The Left’s tax policies are less inflammatory, with the manifesto detailing plans to tax those whose assets and annual incomes exceed €1m. While the SPD have pledged €30bn from Germany’s coffers for public investment, Die Linke have pushed the boat out much further with the largest pledge of all, in the region of €100bn.

Whether this is remotely feasible remains to be seen, but it nonetheless puts the Left under the spotlight for their spending plans.

Die Linke don’t have any major issues with the rest of the EU, but do want other countries to be able to pursue economic expansion of their own accord. The party also has bold plans for minimum wages across the Eurozone, aiming to have this set at 60% of each member’s average national wage.

The Environmental Left – The Greens

As with green parties across the world, Germany’s Greens are mainly focused on protecting the environment, but otherwise share some stances on key issues with Die Linke.

Like the Left, the Greens have co-leadership – party heads are Katrin Göring-Eckardt and Cem Özdemir.

Like the Left, the Greens want borders to remain open to migrants and refugees, but do not share the near-universal right to habitation wished by Die Linke.

The Greens aren’t quite as radical as the Left on defence spending either, wanting more to be spent on the UN’s peacekeeping operations than the German military.

Green tax ambitions are largely in line with other socialist parties, as the party wants higher taxes for higher earners, as well as a tax on assets.

The key field for the Greens is public spending – the party wants to achieve 100% renewable energy generated in Germany by 2030, the push for which could leave other areas of the country behind.

Straight Down the Middle – Free Democratic Party

While the other parties in this year’s German election are broadly left or right-aligned to some degree, the Free Democratic Party (FDP) does its best to represent a centrist platform.

Although the FDP, led by Christian Lindner, are in the middle of the pack with the Greens, the Left and AfD, analysts believe there is a fair chance of the FDP being picked for a coalition by the largest party.

The FDP has a roughly similar tack with the SPD on immigration, recommending a points-based system to assess the economic worth of immigrants entering the country.

On defence, the party wants Germany to ramp up its obligations to the international community by increasing overseas defence spending by 3%.

In a bid to boost national GDP and consumer spending, the FDP is like the SPD and CDU in wanting to eliminate the 1990’s surcharge. Going a step further, however, the party is looking to make a €30bn tax cut, double that suggested by the CDU.

As with the other parties, the FDP has clearly distinguished itself with plans for spending. The party wants to pile funds into developing education, along with putting at least €2bn into roadworks.

The FDP is also concerned with issues of independence, and aims to make it easier for procedures like a Brexit-style exit to take place.

The party doesn’t actively seek EU disintegration, however, instead looking for stricter enforcement of current financial rules, such as the clause that prohibits Eurozone nations from bailing out and taking the debts of another.

Radical, to say the Least – AfD

Rounding off Germany’s rich electoral tapestry is the controversial Alternative for Germany party (AfD).

The AfD can be compared to similar nationalist parties across Europe, including UKIP and France’s Front National. Represented by speaker Frauke Petry, the party echoes the nation-first sentiment of these other groups and has inflamed opinions in the process.

Starting with one of the AfD’s biggest issues, the party has a hardline stance on immigration. Instead of opening Germany’s borders or leaving them unchanged, the AfD want strict border controls and a hard cap of 200,000 for annual net emigration.

The AfD are also looking inward with defence spending, wanting NATO to rein in its activities to within the borders of member nations. Another notable defensive policy is the reintroduction of conscription, something not active in Germany since 2011.

AfD tax polices aren’t quite so radical, with the party looking to lighten the tax burden on lower earners while maintaining an overall budget balance.

The party has some starkly anti-Green spending policies, looking to boost infrastructure across the country while not ‘discriminating’ against diesel vehicles.

Additionally, the party wants to abolish restrictive environmental driving zones, which the AfD believe are ineffective.

The AfD manifesto shows clear climate change scepticism, to the extent that they want the 2050 climate protection plan to be scrapped.

The AfD are also firmly against the Euro, wanting Germany to leave the Eurozone and give up the single currency. The AfD opposes the European Central Bank (ECB) and declares that Germany should not be liable for the failure of foreign banks.

Voting Day – What are the Predictions?

Now that you have some idea of who is running in the election, it’s time to look at the possible outcomes.

The CDU/CSU union is expected to factor strongly into the results, with most experts predicting a coalition of some kind between the union and other lesser parties.

The election may see CDU/CSU and SPD make another coalition, simply because the two parties have been working in supposed harmony during the current government. Currency-wise, the Euro could remain steady in the face of this outcome as it would represent little overall change.

Outside of a continuation of this status-quo, however, most estimates are for the CDU/CSU to make a coalition with the FDP and Greens (the so-called ‘Jamaica’ coalition), or potentially just with the FDP.

Both of these partnerships might also leave the Euro unaffected, as they could be viewed as a preferable governing coalition than the previous CDU/CSU-SPD lineup. In the improbable event that Angela Merkel is actually forced out of power, the Euro could plunge due to the uncertainty this could create for Germany.

It would take dire circumstances indeed for either of the two main parties to form a coalition with the AfD, so even the hint of including the radical right-wing in government is likely to weigh on Euro exchange rates.

While the SPD had an initial surge of support earlier this year, the party’s chances look fairly slim, unless they are able to form an ideologically turbulent patchwork of all the minor parties, barring the AfD.

The SPD is not considered a radical option for government, the requirements needed for a party majority might prove too much to stomach for Euro traders, resulting in a slump for the single currency.

 

Keep an eye on our latest currency updates if you want to find out what impact the latest developments in the German election are having on Euro exchange rates.

Category Economy

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