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Dublin: 13 °C Tuesday 2 September, 2014

Column: What do the results of the German election mean for Ireland and Europe?

David Moloney breaks down the results of the 2013 German federal election, focusing on what kind of impact it will have on the wider eurozone economy – and, specifically, on Ireland’s corporation tax.

David Moloney

ANGELA MERKEL’S PARTY, the Christian Democratic Union, CDU, and its Bavarian sister party, the Christian Social Union, CSU, emerged as the big winners of last Sunday’s federal election. The Union, as the two parties are commonly referred, won 41.8 per cent or 311 seats out of a total of 630 according to the Federal returning officer. The result leaves the Union 19 seats short of an absolute majority in the Bundestag.

The main opposition party, the Social Democratic Party, SPD, on the other hand had a disappointing night. The SPD increased their vote by just 3 per cent, leaving them 16.2 per cent behind the CDU. The party now has 192 seats.

The ‘coalition king makers’ of German politics

The big losers were the preferred coalition partners of the Union and the SPD. The liberal Free Democratic Party, FDP, who were in coalition with the Union, failed to make the 5 per cent threshold required to enter the Bundestag. The party, once the coalition king makers of German politics, no longer has any national parliamentarians. A startling result when one considers that the FDP has spent more time in power than any other party in post war Germany.

The Greens, Die Grünen, who the SPD have formed a coalition at the federal level on two occasions, also suffered. The party dropped by 2.3 points to 8.4 per cent. That leaves the party with 63 seats, one behind the left or Die Linke, who with 64 seats, are now the third biggest party in the Bundestag.

Forming the next German government

Despite the media commentary on possible coalition options there is only one real scenario: a grand coalition between the Union and the SPD. Though the SPD will likely to extract a high price for going into coalition with the Union, the SPD will give Merkel a commanding majority in the Bundestag and the Bundesrat, the second chamber in Germany’s bicameral parliamentary system. With such a majority, Merkel will be secure for four more years.

While the SPD, Die Grünen and Die Linke would have the numbers to form a coalition government, the SPD has consistently ruled out governing with the Die Linke for ideological reasons. However the real reason for not going into power with the Die Linke is the threat that the Die Linke poses to the SPDs base. The SPD is hardly going to allow its main competition on the left to increase its profile at the national level by sharing power with it.

Likewise the Union and Die Grünen would have enough seats to form a government. However the CDU and the Die Grünen have only ever formed two governments at Länder level and both governments were short-lived. The collapse of those governments saw the CDU lose power in Hamburg and forced to seek a grand coalition in Saarland. Thus while the Union’s dominance would be greater over the Die Grünen than the SPD, a Union/Die Grünen coalition could bring about great political instability and/or an early end of Merkel’s chancellorship.

The Union would also be wary of going sharing power with a party that promised to increase taxes, campaigned to ban meat from work canteens one day a week and that is mired in a paedophile scandal. Again a Union/Die Linke coalition would have the numbers, but the ideological difference is so great between the parties that this will not be considered by Merkel.

Finally, while the Union is 19 seats short of an absolute majority, a Union minority government is not feasible. Though a minority government could win the support of opposition parties in the Bundestag, the price for such support would be too high. Such a scenario would allow the SPD or Die Grünen to effectively dictate domestic and European policy, which would leave Merkel a lame duck chancellor.

What would a grand coalition mean for Ireland and Europe?

Some have argued that a grand coalition would present the best chance of changing Germany’s policy in the euro area. While on the face of it the addition of a left party like the SPD might bring about change, I cannot foresee this happening.

The SPD in the 17th Bundestag supported Merkel’s policy towards distressed Eurozone economics like Ireland’s. True, the SPD in opposition argued against the policy of austerity that Ireland had to push through and the party even floated the possibility of Eurobonds. In reality the SPD supported the Union/ FDP government in all of the major votes that were held on Germany’s eurozone policy during the 17th Bundestag.

In exchange for its support, the SPD have managed to extract only minor concessions such as the pledge to introduce the Financial Transaction Tax (FTT) at a European level. Whether the FTT will ever see the light of day is highly debatable. The SPD were just as impotent when in government. In Merkel’s first government, a grand coalition, the SPD failed to make their voices heard when Merkel was pressing ahead with her approach in tackling the 2008 financial crisis in European.

The support for Merkel’ eurozone

This impotence will continue in any future grand coalition. Do not expect the SPD to be able to push Merkel towards a Francois Hollande style approach to the eurozone crisis. The SPD are hampered in this regard by the support of the majority of Germans towards Merkel’s eurozone. Even if the SPD wanted greater flexibility in dealing with the eurozone crisis, its hands may be tied by the Federal Constitutional Court of Germany.

The Constitutional Court will rule next month on the legality of the European Central Bank’s (ECB) bond-buying programme. While the Court is expected to rule that the ECB programme is not illegal, it is likely to make the implementation of such policy quite difficult.

It would not be surprising if the Court made the same decision regarding the use of money from the European Stability Mechanism (ESM) in the recapitalising of Ireland’s legacy bank debts. Thus except the SPD to continue to support Merkel’s eurozone policy into the future.

For Ireland, a grand coalition will not ease the difficult choices that will have to be made in this budget or any other budgets going forward. Nor will a grand coalition agree to reduce any conditions that Ireland would be required to implement for any future financial support.

The thorny issue of corporation tax

Ireland should also not bank on its economic recovery been aided by the grand coalition changing Germany’s eurozone policy to one that encourages more growth. However there may be movement, and not to Ireland’s benefit, on the issue of corporation tax. The SPD may push for an examination of corporation tax across the European Union as a way to raise revenue to tackle the eurozone crisis. Such a scenario is highly probable when one considers the legal difficulties of implementing the FTT and the negative view that many in the SPD have towards Ireland’s low corporation tax.

Ireland will therefore have to use every tool in its diplomatic armoury in Brussels and Berlin to ensure that Irelands corporation tax remains a core Irish competency rather than a Brussels one. Never have the results of a German federal election mattered so much.

David Moloney is currently a tutor of Comparative European Politics and Issues of European Integration at the University of Limerick. David will be beginning his PhD at the University in January 2014 after having been awarded a scholarship; his PhD will explore the impact of Ireland as a bargaining actor in the Council of Ministers of the European Union during the financial crisis. David is a former employee of the European Parliament.

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