| The German question: German politics will make headlines in the next few weeks, starting with a CDU convention today. However, the key issue is not for how long Angela Merkel will remain chancellor or whom her centre-right CDU/CSU may nominate as her would-be successor; instead, we need to watch the SPD and the Greens. Their next moves could decide whether German policies tilt significantly to the left after potential snap elections in 2020. |
| A Green chancellor after Merkel? We currently see a 70% probability that the coalition of the CDU/CSU with the centre-left SPD sticks together throughout 2020, allowing Merkel to remain in office. We put the risk that the SPD walks out of the coalition at 30%. This includes a 5% probability that Merkel manages to soldier on at the helm of a minority government and a 15% probability that her CDU/CSU, under a new leader, enlists the Greens as their new junior partner to pursue a fairly similar policy agenda. This leaves a tail risk of 10% that, after new elections, a coalition of the combined left led by a Green chancellor could govern Germany instead with a more leftist agenda. |
| New SPD leaders could reshuffle the deck: After the second round of a membership ballot from 19 to 29 November, the SPD will announce on 30 November whether the moderate finance minister Olaf Scholz jointly with Klara Geywitz or the left-wing duo of Saskia Esken/Norbert Walter-Borjans will lead the party in the future. If Scholz/Geywitz win, the SPD would almost certainly remain in coalition with the CDU/CSU under Merkel. That would dispel the political risk for the time being. If Esken/Walter-Borjans prevail instead, the risk that the SPD pulls out of the Berlin government would rise to 45%. In turn, the probability that snap elections could bring a coalition of the combined left to power next spring would go up to at least 15%. |
| The pivotal party: If the SPD leaves the coalition with the CDU/CSU, any new government would almost certainly have to include the Greens. Now polling at more than 20%, the Greens would likely insist on snap elections beforehand. After a new vote, all parties would still shun the right-wing AfD (around 15% in polls) and neither the small liberal FDP (c8%) nor the CDU/CSU (c26%) would work with the Left Party (c9%). Short of a dramatic upset, new elections could thus result in one of two outcomes: 1) the Greens join the CDU/CSU as junior partner; or 2) they team up with the SPD and the Left Party instead. Including the Left Party no longer seems to be a taboo for them. Such a potential coalition of the combined left is only 1-2 points short of a majority in current polls (see chart). The option could be attractive for the Greens. As the senior partner, one of their two leaders, the more charismatic Robert Habeck or the more policy-focused Annalena Baerbock, could then be the next German chancellor. |
| What if? A green-red-red government would be hemmed in by the upper house of parliament. The CDU/CSU could still wield a veto against major shifts in tax and European policies in this chamber of state governments for the foreseeable future. But even without control of the Bundesrat, such a coalition of the left may still re-regulate parts of the German economy such as the labour and housing market significantly and impair trend growth as a result. |
Holger Schmieding
Chief Economist
+44 20 3207 7889
holger. schmieding@ berenberg. com
Kallum Pickering
Senior Economist
+44 20 3465 2672
kallum. pickering@ berenberg. com
Florian Hense
European Economist
+4420 3207 7859
florian. hense@ berenberg. com
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