A roadmap for Europe after the German elections

August is usually a dull month in German politics. It’s holiday season, and national parliamentary politics takes a break at the same time. However, this year German politicians don’t have time to put their feet up. The period of parliamentary recess marks the peak of the electoral campaign in Germany before the general elections take place on 22 September. Many people seem to expect that not only will the holiday period end in September, but also the recent lull in European politics. The hope is that the European Union, and the Eurozone in particular, will finally move on to sorting out its structural issues once the German elections are over. I’m not really convinced that this is going to be the case, and here is why.

Not much upside from a shift in policy

Angela Merkel has indicated she would like to renew the current coalition with the liberal FDP after the general elections in September, while the Social Democrats (SPD) and Greens strive for a remake of their 1998/2002 electoral victory. Merkel’s Christian Democrats are currently far ahead in the polls, but a renewal of the coalition with the stumbling FDP is highly uncertain. On the other hand, a coalition of SPD and Greens looks as probable as an English victory against Germany in a football tournament through a penalty shootout. This could leave the two major parties, CDU/CSU and SPD, with the choice of immediate snap elections or a grand coalition. I tend to believe that they would not ignore the electoral will of the German people who remain very open towards the idea of a grand coalition. The recent figures from one of the major German polls, the ARD-DeutschlandTrend, suggest that 23 per cent would prefer a coalition of CDU/CSU and SPD, while the parties’ preferred coalitions qualified for 17 per cent of the poll votes each. In addition, around half of the Germans have consistently described a coalition of CDU/CSU and SPD as a very good or good option over the past few months. If CDU/CSU supporters are left with a coalition choice between Greens and SPD under the assumption of a shortage of combined votes with the FDP, then polls suggest a strong preference for the SPD. That is, the most likely coalition options after the general elections seem to be: CDU/CSU and FDP (existing coalition) or CDU/CSU and SPD (grand coalition).

It stands out in the current electoral campaign that Europe has not been a major topic. European politics does not feel like a policy area where the major opposition party SPD can win votes or would be able to distinguish itself sufficiently from the government’s policy stance. This has also been reflected by the previous legislature period when the opposition parties widely tolerated Merkel’s course on Europe. Bearing the previous policy stance as well as the current polls in mind, I struggle to find strong arguments why a new German government would fundamentally change European day-to-day politics. I expect a continuation of the pragmatic approach of austerity-focused, but sufficiently accommodative steps to keep the Eurozone together, including another bailout package for Greece that treasurer Schäuble hinted upon. Thus far, this political approach has proven to be fairly successful domestically. It feels that it’d require a major game changer to trigger an immediate change in policy. It seems more likely that any political developments with regard to Europe may rather be undertaken with a long-term time horizon.

Deeper European integration could require a referendum in Germany

While a newly elected German government might find it politically too costly to redefine European day-to-day politics, it could also struggle to conclude long-term structural reforms – ranging from Euro bonds, more centralised European governance of national budgets to full political and fiscal union. The president of the German Constitutional Court, Andreas Voßkuhle, pointed out in 2011 that the German Constitution does not allow for further significant European integration. He concluded that the additional transfer of national sovereignty to the European Union, eg the national budget, would require a referendum. This is very noteworthy as Germany has not had a referendum in its post-war history despite the adoption of a new constitution, membership in the European Union as well as the re-unification of East and West Germany. The preparation of a referendum takes a significant amount of time, and the selection of a date is a sensitive issue. In this instance, it might also take time to explain to the public why the proposed structural changes, eg a political and fiscal union, would be in their long-term interest and how it would affect their life as national citizens. The referendum would most likely be based on the adoption of a new European Union treaty which would provide for the future design of European politics and governance. The ratification process and enactment of the last EU treaty, the Lisbon treaty, took more than five years from June 2004 to December 2009. Factoring for some potential political goodwill this time, wouldn’t the next German general elections in 2017 be a reasonable point in time to ask the political parties to communicate their positions on the subject and to let voters subsequently decide upon their future within Europe (or outside)?

Policymakers are unlikely to bear political and fiscal costs amid uncertainty

This may sound familiar to our British readers whose Conservative party has already announced its intentions to call for a referendum on Britain’s future in the European Union by 2017. In the UK, the Conservative party’s commitment to 2017, as well as the prospect of an indispensable referendum in Germany (and elsewhere in Europe), might have set a reasonable deadline for European leaders to develop a concept for the future institutionalisation and integration process of the Union, including the Eurozone. This could then be ratified across Europe, including Germany. Not 2013, but 2017 could mark a historically important year for European politics as national voters could be asked to re-commit to a deeply integrated (and burden-sharing) Europe. If such a scenario for Europe turns into a national government’s base case, it will be difficult to picture these policymakers agreeing on politically and fiscally costly policy measures that go beyond the current pragmatic attitude towards Europe. This argument could not only hold with regard to the aforementioned countries – Germany (anything beyond emergency bail-outs for Eurozone peers) and the UK (financial regulation and EU banking reform) – but also for governments that currently face a strong headwind in the polls. A very recent example is the political situation in the Netherlands where the current government would be dwarfed to a vote share of 23 per cent from a share of 53 per cent in last year’s elections, while the right wing and euro-sceptical party PVV has gained around 10 per cent in electoral support.

If I had to draw a roadmap for Europe until 2017, then the first part of this political journey would carry significant risk of a slow moving city traffic experience, but which could ultimately end on the high-speed Autobahn.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Markus Peters

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