Social Democrats narrowly beat Angela Merkel’s alliance

Social Democrats narrowly beat Angela Merkel’s alliance

CNBC.com:

The German election is heading for tough coalition talks and a possible three-way power-sharing agreement in Berlin, after one of the country’s most significant votes in recent years.

Preliminary results on Monday morning showed the center-left Social Democratic Party gaining the largest share of the vote with 25.9%, according to the country’s Federal Returning Officer, but falling well short of achieving a majority to govern alone.

Angela Merkel’s right-leaning bloc of the Christian Democratic Union and Christian Social Union got 24.1% of the vote, according to the early results. Merkel is stepping down after 16 years as chancellor but her conservative alliance, heading toward its worst election result since World War II, could still cling on to power by playing a crucial role in the eventual coalition.

The Green Party is expected to get 14.8% of the vote. The liberal Free Democratic Party was seen with 11.5%, while the right-wing Alternative for Germany party was seen with 10.3%. The left-wing Die Linke party was expected to gain 4.9% of the vote.

‘We get down to work’

After exit polls on Sunday evening, both main candidates for chancellor, the SPD’s Olaf Scholz and the CDU-CSU’s Armin Laschet, immediately claimed a mandate to govern. But coalition negotiations, which could begin on Monday, are likely to take weeks or even months.

Commenting after the exit polls, Laschet conceded the result was disappointing and said it posed a “big challenge” for Germany.

“We cannot be satisfied with the results of the election,” Laschet told his supporters, according to a Reuters translation.

“We will do everything possible to build a conservative-led government because Germans now need a future coalition that modernizes our country,” he said.

Signaling that another coalition with just the SPD was not probable, Laschet added that “it will probably be the first time that we will have a government with three partners.”

Meanwhile, Scholz, who is the current finance minister and vice chancellor of Germany, said that the party must “wait for the final results — and then we get down to work,” according to Reuters.

He added that “many citizens have voted for the SPD because they want a change of government and because they want the name of the next chancellor to be Olaf Scholz.”

Possible coalitions

The early results mean the SPD or the CDU-CSU would have to form a coalition with two other parties, likely the Greens and FDP, to achieve a majority.

In German elections, the winning party does not automatically appoint the next chancellor as majorities are rare; instead, the chancellor is voted in by parliament after a coalition government has been formed.

Germany experts like Holger Schmieding, chief economist at Berenberg Bank, said the early projections did little to clarify the outlook on Germany’s next leader, and the make-up of the government.

“As expected, both a Scholz-led ‘traffic light’ alliance of the ‘red’ SPD with the Greens and the ‘yellow’ liberal FDP and a ‘Jamaica’ coalition of Laschet’s ‘black’ CDU-CSU with Greens and FDP are possible. SPD and Greens, who are close, would likely extend an offer to the FDP whereas CDU-CSU and FDP, who are also close, would try to get the Greens on board,” Schmieding said in a research note Sunday evening.

To get the Greens involved in a so-called “Jamaica” coalition (so named because the colors of the parties involved replicate those of the Jamaican flag), the CDU-CSU could have to make concessions to the Greens, and more than the bloc might be willing to stomach, Schmieding noted.

Risk removed?

While the next chancellor of Germany remains a mystery for now, the projections seem to dispel investor fears that the country could end up with a coalition of the SPD, the left-leaning Die Linke and the Greens, an alliance in government which, Schmieding stated, “could have impaired trend growth through tax hikes, reform reversals and excessive regulations.”

“If the official results confirm the exit polls — a big if as the results are close and the high share of postal voters of up to 50% may make the exit polls less reliable than usual — we would breathe a big sigh of relief. Until the exit polls, we had attached a 20% risk to such a tail risk scenario,” he said.

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