Climate will be key to the new German coalition
On 26 September, 60 million voters headed to the ballot box in Germany. Three weeks later, the German population still doesn’t know who will form the next government. And it may be a while until they know who will take the reins from Angela Merkel, who is leaving politics after 16 years as Chancellor of Germany.
So what do we know about the election results in Germany so far?
German voters don’t stray too far from the status quo, with centrist parties typically collecting the largest share of votes. And the September election was no different with the largest share of votes going to Merkel’s centre-right party, the Christian Democratic Union (CDU), and the centre-left Social Democratic Party (SPD). But together, they don’t account for 50% of all votes, with the CDU scoring just 24.1% and the SPD, led by former mayor of Hamburg and current finance minister Olaf Schulz, receiving 25.7% of the popular vote.
Whilst CDU and SPD have worked as grand coalition partners in three consecutive governments since 2005, there won’t be more of the same this time around. Not only does the combined vote of the two parties not clear the 50% threshold, and the CDU recorded their worst result of the post-war period, but the CDU won’t accept a position as junior partner in another grand coalition.
Speculation about a three-way coalition, led by one of the two major parties and featuring two smaller parties, is intense. The two likely coalition partners with the SPD are the left-of-centre Green party (The Greens) and the free-market Free Democratic Party (FDP), which received 14.8% and 11.5% of the vote, respectively.
Generational shift in voter behaviour
Earlier this year, the Greens had even entertained hopes of winning the election, at times holding 28% in pre-election polls. They owe this in large part to the next generation of German voters who are channelling their political clout through the Greens and FDP, leading both The Greens and the FDP to a position of influence over where coalition talks are heading.
Both parties hold entirely different positions on how to reach Germany’s climate goals, with the FDP favouring a free-market approach to climate and social policy (relying on high CO2 pricing) whereas The Greens see this as “deeply socially unjust”. Regardless of these disagreements, there is a broad consensus that Germany needs to transition to net zero emissions and a green economy.
Jamaica or Traffic Light – what will it be and when will we know?
Germans will likely end up with one of two possible coalition scenarios, a centre-left coalition with two progressive parties (SPD and The Greens) and the FDP, or a centre-right coalition with the CDU and former coalition partners FDP, and The Greens.
The process to an agreement on any coalition will likely take weeks, if not months, as it has in the past. After the last election in September 2017, it took six months to form a new government. And it wasn’t always clear back then that it would be yet another grand coalition either. Back then, a Jamaica coalition (named after the colours of each party (CDU-black, The Greens-green, FDP-yellow) seemed likely until the FDP walked away after two long months of negotiations citing irreconcilable differences.
And it seems likely that the FDP may be the “kingmaker” again in 2021. The alternative to Jamaica, Traffic Lights (you guessed it, another name based on party colour coordination, SPD-red, FDP-yellow, The Greens-green) is emerging as the most likely scenario after The Greens and the FDP last week announced that they have entered extensive negotiations with the SPD as their preferred coalition partner.
As progressive parties, the SPD and The Greens are naturally more aligned and both parties have indicated their preference to work together to form government. In the past, the FDP has been openly sceptical towards this coalition option, but has now come around and announced that Traffic Light talks will move into the next stage.
A further indicator that a centre-left coalition is the most likely outcome is the increasing internal focus/in-fighting of the CDU following the devastating election loss. The CDU’s top candidate and current premier of the most populated state North Rhine-Westphalia, Armin Laschet, has indicated to put the party leadership up for revote at a just summoned party congress before the end of the year. And several other Merkel allies, such as the minister for economic affairs and energy, Peter Altmeier, and current defence minister Annegret Kramp-Karrenbauer announced that they will vacate their seats in Parliament to make way for a new generation that can rejuvenate the party.
Climate policy at the heart of all conversations
But whether Traffic Light or Jamaica, climate policy will be the red line The Greens won’t cross. “The next German government has to be a climate government”, repeated The Greens top candidate Annalena Baerbock just before the election when talking to German television channel ZDF.
And while there are many differences in their approaches on how to deal with climate change, both the progressive and liberal parties agree that climate change needs to be addressed. “We agree on the goals but still need to talk about the appropriate measures,” said Nicola Beer, a deputy leader of the FDP.
While the Greens are traditionally pushing for a more regulatory approach to shift to more climate-friendly means of production and transport, the FDP traditionally prefers market-based solutions to further investment in emissions-free technologies such as hydrogen wind turbines.
According to Politico Europe, there are some starting points at least with both parties supporting higher prices for CO2 emissions via the existing emissions trading system and both wanting to use the profits from these certificates to finance social support for low-income families and those financially impacted by the green transition. Disagreements can be expected, however, when it comes to determining the price of such certificates – the FDP wants it determined by the market, whereas the Greens demand it set by the state.
Other divisive topics include the Greens’ demand for a speed limit, an outright ban on combustion engine cars by 2030, which the FDP rejects, and an earlier coal phase-out by 2030 instead of the currently agreed 2038. As for the latter, the market economy driven liberals prefer incentives over regulations for energy providers to switch to renewables. But, as FDP general secretary Volker Wissing posted on his Instagram account: “In search of a new government, we’re exploring common ground and bridges over divisive topics. And even find some. Exciting times.”
If the progressive parties will manage to align with the FDP on climate-related topics such as CO2 price mechanism and technology-versus-regulatory approaches, there are still other hurdles to overcome, though, such as tax reforms and other fiscal policies within the eurozone before a coalition announcement can be expected.
Assuming they overcome these hurdles – what can we expect from the Traffic Light coalition internationally?
A coalition including SPD and Greens will likely support turning the NextGeneration EU fund (which finances the majority of pandemic recovery and Green Deal projects) into a more permanent mechanism and pushing for a relaxation of debt rules in the Eurozone, thus softening its EU influence overall. Given the FDP’s hawkish fiscal stance, this may lead to some combative coalition potential right from the start further elevating the role of France within the European Union, who will be taking over the EU Presidency in January 2022.
Further afield, a left-of-centre coalition might take a tougher stance on China and Russia, with the Nord Stream 2 gas pipeline remaining a contentious issue for The Greens. With The Greens almost certainly being a part of the next ruling coalition, an acceleration of ESG focus on all policy issues can be expected, including in the ongoing EU-Australia trade negotiations.