Complex coalition talks ahead as SPD clinches top spot in German federal elections

• Massive losses for Merkel’s CDU/CSU, strong gains for SPD, Greens and FDP
• SPD candidate Scholz gains top position, CDU/CSU and Armin Laschet drop to second place
• Two coalition options: “Traffic light” coalition between SPD, Green Party and FDP and “Jamaica” coalition between CDU/CSU, Green Party and FDP

Berlin, September 27, 2021. The German federal election may be over, but who will succeed four-term chancellor Angela Merkel is far from clear. The Social Democrat SPD, Merkel’s junior partner for 12 years and three of her four terms, won the election with 25.7% (+5.2%). By contrast. Merkel’s party family CDU/CSU performed particularly badly and endured significant losses, landing at 24.1% (-8.8%). But in the German parliamentary system, the strongest party does not always get to lead a government: a coalition needs to be forged, this time between three partners. Since multiple coalition options exist, two potential chancellors remain in the race: Olaf Scholz (SPD), finance minister on a federal level, and Armin Laschet (CDU), prime minister of the largest German state, Northrhine-Westphalia. With her party in third place at 14.8% (+5.9%), the Green party chair Annalena Baerbock, who had also entered the race with the ambition to follow Merkel, no longer has a chance to become chancellor. The market-oriented liberal party FDP remains in the mix regarding potential coalitions with a strong performance of 10.3% (+0.8%). The far-right AfD lost 2.3% but remains in the double-digit zone with 10.3%. The post-communist Linke dropped by 4.3% to 4.9% and thus below the threshold of 5%, but will remain in parliament due to a secondary threshold according to which parties with at least three directly elected members of parliament have full representation in the Bundestag.

Whatever the outcome of the coalition poker will be: this election is likely to have ushered in a new era of party politics, with both formerly dominant blocks CDU/CSU and SPD diminished to just above 20%. This will have a strong long-term impact on German politics and may bring along more complicated and protracted negotiations – and a new political system that resembles those of the Netherlands or the Scandinavian countries.

SPD’s Scholz pushes for a “Traffic Light” coalition with Greens and FDP

Confirming his strong performance in the polls in the past weeks, SPD candidate Olaf Scholz has delivered a performance that thrust his party to the number one position in German parliament. Scholz now has the chance to form a coalition and lead it as German chancellor. Scholz and his party had started on third place at the beginning of the year. Back then, few political observers conceded that he had a shot at the post of the chancellor. The poor performances of the former frontrunners Armin Laschet (CDU/CSU) and Annalena Baerbock (Greens) on the campaign trail opened the door for Scholz, who lacks charisma but is perceived as competent and therefore profited from his high name recognition on a federal stage. Moreover, the notoriously quarrelsome SPD put up an unexpected show of unity and managed to deliver a well-oiled campaign.

Scholz now aims to forge a coalition with the Green party and the liberal FDP – the so-called “Traffic Light” coalition. It will be interesting to see which stumbling blocks the SPD party leadership, that leans more to the left than Scholz does, will set up for the negotiations. Scholz will need to enter multiple compromises to lure the market-oriented liberal party FDP into a coalition.

This is where the difficulties begin for Scholz. While the SPD is the strongest party, the CDU/CSU are close second and are also able to form a government by means of a so-called “Jamaica” coalition of CDU/CSU, Greens and FDP. During the election campaign, Scholz himself had repeatedly stated that the second-ranking party would be well-positioned to form a government – at the time, Scholz had meant his own party. On election night, FDP chairman Christian Lindner reiterated his position that his party prefers a business-friendly coalition led by CDU/CSU and repeated that he is doubtful about the SPD’s fiscal and tax plans. Scholz will need to charm two fundamentally different parties and will have to make significant concessions. These may be dismissed by his party base, who need to ratify a coalition treaty. The same party base had denied Olaf Scholz the post as party chairman in the race for the SPD party chairmanship.

Jamaica and the role of CDU/CSU

The CDU/CSU have a chance to wrest the chancellorship away from Scholz and the SPD – if they play their cards well and show the discipline they lacked throughout the campaign. CDU chair Laschet is under significant pressure to deliver and may well face a revolt in the mid-term, as yesterday’s result is a historic low for the CDU/CSU in a federal election campaign. The CDU/CSU’s electoral campaign was one of the weakest in the party’s history: slow and indecisive at the beginning, constantly disturbed by internal strife and a brutal social media campaign against the gaffe-prone candidate. It was only toward the end of the campaign that Laschet got a better grip on the campaign: with pointed attacks on the SPD and Olaf Scholz and with support from chancellor Angela Merkel, who revoked her earlier decision to remain impartial during the campaign.?

For the time being, Laschet has secured the support of his party grandees as well as of the chair of his sister party CSU, Markus S?der. This fragile truce will probably last as long as the CDU and CSU have the option to form and lead a coalition. If Jamaica does not materialize, it is likely that the abysymal result for CDU/CSU may at a later point lead to a period of strife within the party. Several party grandees are rumored to be vying for top posts in a post-Laschet era. Laschet has made clear in internal party meetings that he will not be opposition leader and that he is aiming only for the top position. Part of this strategy is that he will not run for the influential post of head of parliamentary group of the CDU and CSU but prefers to lead the negotiations as party chairman.

Laschet’s luck is that he has a strong relationship with FDP chair Christian Lindner, with whom he had formed a coalition in his home state of Northrhine-Westphalia in 2017. Lindner and his leadership team are hell-bent on making a Jamaica coalition reality. Laschet on his part has started wooing the Greens, factually offering that they receive carte blanche regarding decarbonization. The core question now is whether the Greens will succumb to Laschet’s and Lindner’s siren songs.?

Green party: under shock, but at the verge of entering government

This year’s election brought a mixed result for the Greens. The party’s audacious move to field Annalena Baerbock as candidate for the top post of chancellor seemed mildly realistic in April and May, when the Greens at least briefly topped the polls. A series of mistakes on the campaign trail – especially the handling of a plagiarism debate surrounding Baerbock’s CV and a book she claimed to have written – brutally hit the party’s rating. Surprisingly, the Greens even failed to profit from the fact that climate change ranked as top issue in the electorate during the campaign. Not even the extreme climate events abroad and at home, when summer flash floods severely hit several German regions and killed hundreds, helped bolster the party’s ratings.

But despite the fact that they have fallen to third place, the Greens have achieved their historically best federal election result and will most likely be part of the German federal government. While the party base leans to the left and Baerbock has publicly displayed a slight preference for a coalition with the SPD, the party leadership has been careful to signal equidistance between SPD and CDU/CSU. This stance has been repeatedly voiced on election night, when top-level Green politicians declined to commit to the SPD and kept the door to the CDU/CSU wide open. The Green party also shows this equidistance on a regional level – they govern in coalitions with both SPD and CDU, each individual alliance depending on arithmetics and concrete policy issues. The Green party’s negotiators will be eager to push key points of their agenda, the main topic being the decarbonization of the German economy. Since the party sees both Laschet and Scholz and their respective parties as equally backward in terms of ecological policy, their commitment to either the Jamaica and the Traffic Light options will strongly depend on which policies the Greens will be able to assert in the context of a coalition contract.?

FDP: back from the brink and ready to coerce partners into Jamaica coalition

In spring 2020, the market-oriented liberal FDP party was polling below 5%, the decisive threshold to enter parliament in Germany. The FDP staged a remarkable comeback this year, when its leadership managed to find a strong voice and hone its message, showcasing itself as a viable alternative to centrist voters who constructively criticize lockdown policies without doubting the existence of the virus. The FDP moreover managed to regain credibility in the main field it is associated with – economic policy – while putting forward a broader agenda across all key political areas. The party’s initiatives in fields such as civil rights and digitization have proved particularly attractive, and may have contributed to its new success with younger voters.

Through this, the FDP has managed to attract conservative former CDU/CSU voters who had been alienated by the Merkel coalition either in the field of migration or that of economic policy. On election night, FDP party chairman Christian Lindner positioned himself very clearly in favor of a Jamaica coalition rather than a traffic light coalition, not least due to fiscal and tax policy suggestions put forward by both SPD and the Greens.

What to expect from the respective coalition models

Jamaica: A Jamaica coalition will probably be the smoothest in terms of negotiations. CDU/CSU and FDP are rather close in policy terms, and it is to be expected that the Green party will concede on social policy issues such as minimum wage and wealth tax should their partners give them a strong mandate for serious policies to battle climate change. On election night, Laschet all but opened the door to giving the Green party maximum autonomy on questions of climate change. All three parties agree on the necessity to reduce carbon emissions, yet their answers are diverge widely from robust regulation (Greens) to a focus on emission trading (FDP). Jamaica is by far the most market-friendly coalition option, as both CSU/CSU and FDP have promised a deregulation package. One key novelty will likely be a ministry for digitization, a core part of both the CDU/CSU’s and FDP’s electoral platforms. The Green party will likely seek to occupy the posts of Foreign Minister and Climate/ Ecology Minister while the FDP have their eyes set on the Finance Ministry. In terms of foreign policy, Jamaica will remain committed to Europe and the Nato as well as to a strong German role in international multilateral institutions.

Traffic Light: A Traffic Light coalition will be extremely tough in terms of negotiations – the FDP’s Christian Lindner has all but ruled it out. All three parties are close in terms of civil liberty issues such as data protection, abortion rights or cannabis legalization and are likely to quickly agree on these issues. Climate policy will be a more difficult part of the negotiation. All three parties agree on the necessity to reduce carbon emissions, yet their answers diverge widely from robust regulation (Greens) to a focus on emission trading (FDP). The toughest part will definitely be on social and fiscal poliy. SPD and Greens are rather close on issues such as minimum wage and wealth tax – the FDP has fundamentally different views on these. It will be very difficult for the FDP to agree to such a coalition since they will have to give in to least some of the more interventionist policy objectives of their potential partners. Olaf Scholz himself will probably be able to offer a compromise of sorts – but he needs to propose this to his left-leaning party base, who need to ratify the contract in a referendum. Should the coalition become reality, the Green party will likely seek to occupy the posts of Foreign Minister and Climate/ Ecology Minister while the FDP have their eyes set on the Finance Ministry. In terms of foreign policy, the Traffic Light coalition will remain committed to Europe and the Nato as well as to a strong German role in international multilateral institutions.

What is going to happen next?

While SPD and CDU/CSU prepare their pitches for their respective coalition options (Traffic Light or Jamaica), it is expected that Greens and FDP will start informal talks to see whether they would be compatible within a coalition. Both parties target a similar demographic but are ideologically and culturally far apart, but their respective leadership teams have in the past years started to build bridges. For both parties, the most important aspect of the negotiations – policy issues apart – will be how to sell a coalition to their respective party bases. A Traffic Light coalition will be a particularly hard sell for the FDP, and so will be Jamaica for the Greens.

The initiative for talks with Greens and FDP will come from both SPD and CDU/CSU. As the strongest party in parliament, the SPD will probably make the first move. We expect negotiations to take very long and do not anticipate a decision on a new coalition within this year. Angela Merkel will probably have to continue governing into 2022 – the German population will surely appreciate seeing her annual New Year’s Eve broadcast for a final time this year.