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GERMANY: Austere kingmakers?

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With just over six weeks to go until the 26 September Bundestag elections, opinion polls suggest that the next government might, for the first time, have to be made up of three partners. A three-way coalition was already the assumption for any government without Armin Laschet's Christian alliance (CDU/CSU), i.e., a so-called “traffic light” coalition of the Greens, the Social Democrats (SPD), and the center-right Liberals (FDP). However, after missteps by both Laschet and the Greens' chancellor candidate Annalena Baerbock, even a coalition of this pair might not control a majority.

If the election result were to look roughly like the current polls, even a “black-green” coalition would require the FDP as a third partner. This would mean another attempt at the so-called “Jamaica” coalition, which outgoing Chancellor Angela Merkel had failed to negotiate back in 2017, prompting her to return to the grand coalition with the SPD. In 2017, FDP leader Christian Lindner had pulled the plug on the Jamaica talks, prompting years of criticism for what Germany's stability-prone electorate largely saw as the FDP's flight from government responsibility. Eager not to repeat the same mistake, Lindner is very clearly signaling his intent to govern this time, including a stated desire to serve as the next finance minister.

This situation renders Jamaica the new, most promising coalition option. As kingmaker, the FDP has every reason to prefer a coalition with CDU/CSU and the Greens over cooperation with the SPD and the Greens. In a Jamaica scenario, the FDP could hope to encircle the more socially liberal Greens with two overall more economically liberal forces. On a personal level, Lindner has already negotiated a well-working coalition with Laschet in the past, in their home state of North Rhine-Westphalia. Finally, a traffic light coalition would probably only be acceptable for the FDP if led by the SPD's pragmatic Finance Minister Olaf Scholz – not by the Greens' Baerbock. However, the SPD remains just behind the Greens, for now, rending a Scholz chancellorship unlikely.

Coalition games are, therefore, already pointing to the market-relevant policy implications. In a traffic light scenario, the FDP would be the smallest partner in a coalition with two other parties that have spoken about the need for greater spending on the green transition in Germany and Europe. In a Jamaica coalition, in contrast, Laschet's CDU/CSU and the FDP would share their commitment to the “black zero” policy of balanced budgets and the constitutional “debt brake.” Such an outcome would further complicate the outlook for reforming the EU Stability and Growth Pact and, in general, for cooperation with Paris ahead of the crucial French elections in the spring of 2022.

It is important to keep in mind that even with a seemingly more benign government coalition, the real prospects for reforming the debt brake and significantly increased spending are at best dubious. The biggest question mark remains the Greens' true commitment to spending, as they keep attracting former CDU/CSU upper-middle-class voters. Only a “red-red-green” coalition with the post-communist Left could probably count as truly spendthrift but is, tellingly, being pursued neither by the SPD nor the Greens. Jamaica, in contrast, would see both the internationally much-anticipated arrival of the Greens in government – and the likely continuation of Germany's fiscal “stability culture.”

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GERMANY: Austere kingmakers?

With just over six weeks to go until the 26 September Bundestag elections, opinion polls suggest that the next government might, for the first