German Federal Election: Overview of the Possible Coalitions

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With the markets now well settled after a rather uncertain start to the year, the German elections will be the dominating theme in the coming months. Although the risks surrounding the election outcome is a lot less compared to the Dutch and French elections this year, investors and speculators alike will no doubt be closely monitoring the developments out of the Eurozone’s economic powerhouse.

With nearly six political parties competing against one another, the possibilities for coalitions in German politics is quite strong. In recent history, German politics has always been dominated by coalition politics, which has become the cornerstone theme for the nation.

Who are the main political parties in Germany?

Although there are six political parties competing against one another, the main contenders are easily the Christian Democratic Union (the CDU) and the Social Democratic party (the SPD). However, the rise of the anti-establishment parties could potentially take away some of the votes from the above main political parties.

Still, with the CDU and the SPD emerging as the largest of all the political parties in Germany, the 2017 German elections will likely see the SPD and CDU coming together once again. There is a small risk of the anti-establishment parties such as the Alternative for Germany (AfD) taking up some of the votes. But this risk is quite small given that the Greens party and other left-leaning political parties are seen as the right choice for coalitions if need be.

Some of the mainstream political parties have already ruled out any post-election alliance with the anti-establishment parties, leaving the political alliance in a somewhat familiar narrative.

German Elections 2017: Potential Alliances

Below are some of the potential post-election alliances that could be seen forming.

Christian Democratic Union (the CDU) and the Social Democratic Party (SPD)

The chairperson of the CDU is the incumbent Angela Merkel. The CDU comes with a rich history dating back to the 1950’s. The CSU or the Christian Social Union is considered to be the “sister party” of the CDU in Bavaria.

Dubbed as “the grand coalition” or the Red-Black coalition, it is the standard alliance for two of the biggest political establishments in Germany. Both the CDU and the SPD are considered centrist parties and is a safe bet for Germany. This is the current coalition that is in power.

Polls predict that the CDU and the SPD coalition could once again come into power. However, given the recent performance of opinion polls, anything is possible. Still, the CDU/SPD alliance has a higher possibility of coming into power once again, maintaining the status quo.

However, in recent months, Martin Schultz, the leader of the SPD and former president of the European Parliament has emerged as a strong contender to Ms. Merkel. It will be interesting to see how power sharing between the two parties will emerge in the post-election alliance.

The SPD and the Green Party

Simone Peter, Co-leader of the German Greens Party
Simone Peter, Co-leader of the German Greens Party

An alliance between Martin Schultz’s SPD and the Green party is another possibility. This alliance would make the government center-left with the SPD most likely to emerge as the party calling the shots.

The Green party, however, has its own set of problems as the party has just less than 8% support currently. However, the combination is seen as a natural alliance with the Greens being considered to be a progressively leftist party.

While there is a possibility that the SPD and the Green party alliance might not be enough, there is scope to bring in the Left party. But this comes at a risk due to the fact that Left party has been quite verbal about its reservations against the NATO.

Other alliances possible, but it will be Merkel vs. Schultz

While there is scope for other variations to the alliances, one thing that is clear is that the 2017 elections will be a race between the incumbent Merkel and Schultz.

On a broader perspective, regardless of which of the two leaders emerge as the next Chancellor, the outcome is unlikely to bring about any big changes to the current status quo in the Eurozone. What is likely however is the next leader of Germany will race ahead towards building a closer integration in the Eurozone.

From a speculative or an investing perspective, this means that the Eurozone is likely to head into a period of calm and stability both on the political and economic front.

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