Germany edges closer to new government as Merkel lays down terms

Europe’s biggest economy edged closer to a new government over the weekend as Chancellor Angela Merkel began haggling with the Social Democrats over the terms of a potential partnership.

In a speech to members of her Christian Democratic Union in the Baltic sea resort of Kuehlungsborn Saturday, Merkel said any coalition partner would have to support a balanced budget and broadly pro-business policies. Reaching out to the SPD, her ally during two of her three terms, the chancellor said “we did a good job. We worked well together.”

“There is virtually no doubt that it’ll all end with a majority coalition led by Angela Merkel,” UniCredit Global Chief Economist Erik Nielsen said in a note to investors. “Only exactly when such a government will be in place is still unknown.”

Merkel and SPD head Martin Schulz, her defeated election challenger, are scheduled to meet Thursday at the invitation of German President Frank-Walter Steinmeier, who is urging party leaders to find a way to avoid new elections. The SPD is 63-year-old Merkel’s last option for a fourth-term majority after talks with the Free Democrats and the Green party broke down on November 19.

SPD caucus leader Andrea Nahles, speaking Saturday at a convention of the party’s left-leaning youth organisation, said Germany’s oldest party shouldn’t prematurely tie itself to an opposition role in difficult times, DPA reported. But Merkel shouldn’t expect the SPD to become “the stopgap for the failed chancellor,” she said. Maria Luise Dreyer, the Social Democrat prime minister in Rhineland-Palatinate state, told the Trierischer Volksfreund newspaper that Merkel “isn’t in a position to table demands” after her failed efforts to build a coalition with the FDP and the Greens.

Voters’ support

Polls suggest that a weakened Merkel can still count on her party’s support, even though she’s facing persistent criticism from conservative members, particularly for her open-borders refugee policy. A man in the audience in Kuehlungsborn this weekend stood up to call on Merkel to resign, though he was booed by the crowd of about 200 people.

“While members were reported to have started to question Merkel’s leadership after the election, her support has increased again,” UniCredit’s Nielsen said. “There’s no realistic probability of her stepping aside.”

As the likelihood of another grand coalition increases, so does support for the parties involved. In an Emnid poll for Bild am Sonntag newspaper, backing for Merkel’s Christian Democrat-led bloc rose two percentage points to 33% while support for the SPD climbed one point to 22%, with 52% of respondents in favour of a formal alliance between the two parties and 39% opposed. Emnid interviewed 1,225 people on November; 20-23, no margin of error was given.

Talks need time

As Merkel reaches out to the SPD, even echoing the party’s slogan of a “fair society” in her speech, senior CDU leaders are warning the Social Democrats not to set too high a price on their support.

“They shouldn’t overdo it now and make new demands every hour,” Volker Bouffier, the Christian Democrat prime minister in Hesse state told reporters as he headed into a meeting of the party’s leadership in Berlin on Sunday evening. “The Social Democrats have to understand that a party with 20% can’t get 100%.”

The Social Democrats will need some time to decide whether they’re ready to ally with Merkel again, especially after a “rollercoaster ride” this week that began with the party ruling out a re-run of the pact that pushed them to their worst result since World War II, Bouffier said.

“I think we will have to wait for the party convention to see with whom and how the Social Democrats will position themselves,” Bouffier said, with a nod to the SPD’S next regular convention on December 7 in Berlin. “But then we should really start talks relatively quickly.”

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