Chancellor Angela Merkel is leaving a fragmented political landscape. Under Armin Laschet, her uninspiring successor, support for the centre-right CDU/CSU bloc has dwindled to around 20%, from 30% in 2017. Relative enthusiasm for the centre-left Social Democrats and the smaller Greens and Free Democrats, mean the next government will likely need three parties to command a parliamentary majority.
That would be a first for modern Germany. If the SPD, led by current Finance Minister Olaf Scholz, were willing to get into bed with the much smaller Left party, Germany would end up with a strongly socialist government. Yet disagreements over foreign policy make that alliance a long shot. The more plausible outcome is a coalition between three of the four big parties. That could take months to form and would be vulnerable to future disputes.
That could be a missed opportunity. Europe’s largest economy needs to address a chronic public investment deficit, which Scope Ratings estimates at 410 billion euros. Its labour force is set to shrink by up to 6 million workers by 2035. And key industries like car-making face big technological shifts.
Gridlock in Berlin will also hurt at a European level. Though the Green party favours moving closer to fiscal union in the euro zone, any coalition partners are likely to resist. Necessary post-pandemic reforms to the bloc’s Stability and Growth Pact, which limits member states’ budget deficits and debt levels, could be delayed.
Yet any new government will have to accept fiscal reality. After adjusting for economic swings, Germany’s fiscal deficit is set to be 5.8% of GDP this year, Citigroup reckons, making a return to the debt brake’s 0.35% limit in 2023 looks unrealistic. The threats from climate change, highlighted by recent devastating floods, will increase pressure for higher investment. Despite the confusion, that would be progress of sorts.