February 15, 2018 / 12:31 PM / in 3 months

Breakingviews - German politics has become Europe's weak link

By Swaha Pattanaik

German Chancellor Angela Merkel and Mayor of Hamburg Olaf Scholz, who is slated to become finance minister in the new government coalition between Germany’s Social Democrats and Merkel's conservative Christian Democrats. REUTERS/Patrik STOLLARZ

LONDON (Reuters Breakingviews) - German politics has become Europe’s weak link. Though the country’s left-leaning Social Democrats (SPD) last week clinched a coalition deal with Chancellor Angela Merkel, the party is now putting the agreement to grassroot members. Infighting means this is no longer a rubber stamp. A rejection would make it harder to push through reforms to the euro zone.

Rank and file SPD members are wary of joining forces with Merkel’s Christian Democrats (CDU) again given how much voters punished their party’s membership of the previous “grand coalition” in the September 2017 election. That scepticism grew after the SPD leadership secured the finance and foreign ministries as part of the coalition deal. Some members suspect that former leader Martin Schulz and others had sacrificed the party’s best interests to land high-profile jobs.

With feelings running high, Schulz has given up the foreign minister job. Meanwhile Andrea Nahles, who was expected to succeed him as SPD leader on a caretaker basis, will have to wait for a conference to endorse her. Younger, more radical SPD members want the party to spend some time in opposition so it can reform itself and regain voters’ confidence. Results of the ballot are due on March 4 - the same day as Italians go to the polls.

If the coalition deal falls apart, Merkel has two options. The first is to call fresh elections. But support for both Merkel’s Christian Democrats and the SPD has fallen since the last vote. That makes it even less likely that the chancellor could cobble together a multi-party coalition. The alternative is for her to lead a minority government and rely on the support of one or more other parties to pass key policies. That would at least spare Germany, and the rest of Europe, a longer period of political limbo.

The drawback is that Merkel would then be less likely to propose big European reforms such as developing the euro zone’s bailout fund into a full-blown European Monetary Fund. Some within her own party oppose the plans to strengthen euro zone ties that were outlined in the coalition deal. She could ill afford to alienate them if she were running a minority government. Without the SPD at her side, Merkel’s leadership could become a European liability.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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