Cracks appear in Germany's grand coalition

Below is a news clipping from the Economist. Now I know why Euro fell this week. To the original post

Cracks appear in Germany's grand coalition

Nov 2nd 2005
From The Economist Global Agenda

A key member of Germany's nascent grand coalition has resigned as chairman of his party, while another has decided to stay in Bavaria rather than serve as a minister. If the Christian Democrats' Angela Merkel cannot hold things together, new elections may be called next spring

AMID much fanfare, Dresden’s famed Frauenkirche was formally reconsecrated last weekend. Rebuilding the landmark Baroque church, which Allied bombers turned to rubble in 1945, has been a task of enormous complexity spanning more than a decade. Though it may not take that long, the job of cobbling together a “grand coalition” to run Germany following a snap election on September 18th is proving similarly monumental.

For days after the election, Chancellor Gerhard Schröder refused to admit defeat, even though his Social Democrats (SPD) had won fewer seats than Angela Merkel’s Christian Democrats (CDU) and her Bavarian sister party, the Christian Social Union (CSU). Yet he eventually yielded, a new cabinet drawn from both sides was agreed, a coalition deal was under construction—and the scene seemed set for Ms Merkel to be elected Germany’s new chancellor on November 22nd

But this week, two of the grand coalition’s main architects resigned—at least partially. On Monday October 31st, Franz Müntefering, the chairman of the SPD, unexpectedly announced that he would step down, after his party’s executive committee rejected his candidate for the SPD's number two position. A day later, Edmund Stoiber, leader of the CSU, declared that he would prefer to remain Bavaria’s premier rather than join the new government as economics minister. Yet both say they intend to continue leading their respective negotiation teams for the coalition and Mr Müntefering still wants to be Ms Merkel's vice-chancellor and labour minister. The question now is whether the entire edifice of the grand coalition may collapse, meaning that the country could head for fresh elections, probably next March.

Even to insiders, the latest turn of events has come as a surprise. Germany had settled into a negotiation routine. The coalition-building machine seemed to be running relatively smoothly. Once or twice a week, the main delegations would meet to talk about the big picture. In between, 16 working groups would get together to hammer out more detailed proposals. In total, nearly 200 politicians have been directly involved.

Predictably, there were many leaks, which helped to fill the papers and create a sense of increasing controversy. But the emerging coalition’s inner circle—which besides Ms Merkel, Mr Stoiber and Mr Müntefering includes Mr Schröder, Peer Steinbrück, the designated SPD finance minister, and Roland Koch, the CDU premier of Hesse—seemed to have developed a measure of trust and good working relations. Last week they agreed on a savings package of €35 billion ($42 billion) to push Germany’s public deficit below the EU-stipulated limit of 3% of GDP by 2007 (though Ms Merkel has since said a bigger cut may be needed). And this week they agreed on how to reform Germany’s federal system, and on a corporate-tax cut.

Yet just as the Frauenkirche needs strong pillars to hold up its dome, a grand coalition needs disciplined parties to support the government. In other words, the SPD can’t be both in government and in opposition. This is why Mr Müntefering insisted on installing his trusted right-hand man, Kajo Wasserhövel, as the SPD’s general secretary, rather than leaving this important job to Andrea Nahles, unofficial leader of the party’s left wing, who thinks that the SPD should be re-establishing its credentials as a people’s party to improve its appeal and fend off the Left Party. Though Mr Wasserhövel had been expected to win, the party’s executive committee voted 24 to 13 for Ms Nahles. Shortly after the vote, Mr Müntefering declared that he would not stand for re-election as party chairman at the SPD’s next congress in mid-November.

Mr Müntefering’s abrupt decision almost spun the party out of control. Most members of the executive board were visibly shocked; one resigned, and more are expected to follow. Ms Nahles has let it be known that she may not want the job after all. Only with the quick nomination of Matthias Platzeck, the premier of Brandenburg, as candidate for SPD chairman, did a semblance of calm return. Even the CDU welcomed the choice of an eastern German premier who heads a grand coalition in his own state. He is popular without being populist and is widely touted as a prospective SPD chancellor of the future.

In the meantime, Mr Stoiber announced his decision to stay in Bavaria—officially because he thinks the SPD is no longer a reliable partner after the resignation of Mr Müntefering, with whom he gets on well. But most see this as merely an excuse. Mr Stoiber has been in a huff since failing to get the “super ministry” he wanted; after a series of petty power games, he is no longer taken all that seriously; and a battle over his succession in Bavaria threatens to split the CSU. After the dust settled, Michael Glos, the head of the party’s parliamentary group, emerged as its new pick to become Germany’s economics minister.

Running out of time

Even if the turbulence passes, this week's events have made the birth of the grand coalition more difficult. The SPD’s left wing has shown itself much less willing to accept compromises in order to stay in government. It is now a lot less likely that a grand coalition will attempt to go beyond mere repair work—such as reducing the deficit and reforming federalism—and tackle more far-reaching reforms. Optimists, however, argue that the in-fighting has reduced the SPD’s chances at any new election, so it may yet prove readier to agree to a deal with Ms Merkel.

The pressure of time doesn’t help. Next week will be crucial. The parties have set November 12th as the deadline for an agreement—just in time for the SPD’s congress, which has to endorse the grand coalition. But there is also much pressure on Ms Merkel to reach a deal. She has scheduled a party conference on December 5th to discuss why the CDU did less well than expected in the election. If she is not inaugurated as chancellor by then, critics and rivals within the party might switch to attack mode. Many fault her personally for the disappointing result.

In more than one way, indeed, the CDU and CSU see themselves as facing the same strategic challenge as the SPD: do they want to remain big-tent people’s parties or will they push for necessary but painful economic reforms that might strip away some of their backing? Ms Merkel stands for the second approach, though many in her party prefer the first. If the negotiations on a grand coalition fail and Germany heads for a new election, it is not clear whether she would again be the opposition’s candidate for chancellor.

If this week’s events reveal anything, it is that Germany’s big parties are in their worst crisis since the second world war. Even though it will be painful, their best chance for a lasting comeback may be to form a grand coalition and make it work. Otherwise, even more voters will opt for the competition to their left and right.