Finance: Research, Policy and Anecdotes

The coalition negotiations between Christian Democrats, Greens and Liberals have broken down.  There is talk of reviving the “grand” Coalition (grand as in comprising the largest two parties, but with a very small g, as far from having a dominating majority, just 56%, compared to over 90% in the first edition in the 1960s).   Having yet another grand coalition (after both parties lost 14% between the two), does not just send the wrong signal to voters, it makes the right-wing AfD the biggest opposition party. A look south of the border to Austria shows the danger of such an arrangement.

Protracted coalition talks are common in other European countries (e.g., Netherlands and Belgium).  In both countries, public administration continues as normal with little change noted for citizens and residents of these countries (except that painful budget cuts might be delayed).  Germany does have a special role in the Eurozone and European Union, however, so that a full-functioning German government would indeed be important.

Unlike the Economist, I do not think that new elections are the right way forward. Rather a minority government of CDU/CSU is called for, with varying support by other parties (as also recommended by the FT).  This would help overcome one big weakness of 12 years Angela Merkel – limiting decisions to a small circle and selling them as without alternative. It might slow down decision making, but might make for more discussion among parties, in the Bundestag and in the public. The other centrist parties will certainly be happy to play ball. While minority governments have a bad reputation in Germany (given the experience during the interwar Weimar Republic), it is a much safer option than in other countries, as the chancellor can only be replaced by an absolute majority (which would involve cooperation of the three other centrist parties with either left or right extremists to elect a different chancellor, rather unlikely).  So, once Merkel is re-elected as chancellor with simple majority, the only way to terminate the minority government early would be if the CDU/CSU can pass little or none of its programme and/or cannot pass a budget. It might then force new elections.  Certainly, an experiment worth undertaking. 

Overview