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Germany – Merkel Still in the Driver’s Seat

Chancellor Angela Merkel’s perceived mishandling of the European refugee crisis has left her vulnerable to a successful challenge for her job at a general election that will be held in September. Her only serious competition will come from Martin Schulz, a former president of the European Parliament, who early this year was elected to lead the SPD, the junior partner in the grand alliance government.
The leadership reshuffle produced an immediate bump for the SPD, which by early February had pulled even in the polls with the alliance of Merkel’s CDU and its Bavarian counterpart, the CSU, with support for both at close to 30%. Schulz is a committed supporter of European integration who has nevertheless been pressing for institutional reforms aimed at introducing a more devolved decision-making process within the EU, a stance that sets him apart from Merkel and might even help him to attract euroskeptics among the electorate.
However, with more recent polls showing the CDU-CSU reclaiming the lead, and The Left making marginal gains (presumably at the expense of the SPD), it appears that the Social Democrats have peaked in terms of any gains the party might expect to enjoy as a result of the enthusiasm generated by Schulz’s emergence as a contender for the chancellor’s post. Meanwhile, support for the AfD has stalled in high single-digit territory, suggesting that moves by the government to make Germany less attractive to immigrants have helped to reduce the anxiety and anger surrounding the issue that has contributed to growing support for the far right.
The CDU’s unexpectedly strong showing at a state election held in Saarland in late March suggests as much, but an upcoming vote in Schleswig-Holstein, where the SPD and the CDU each currently controls 22 seats, may provide a better gauge of the relative strength of support for the coalition partners. Both parties plan to campaign for the general election on that assumption that they will not team up for another four-year term, but if the current breakdown of support for the various parties is consistent with the election results, a renewal of the grand coalition may provide the only realistic path to a parliamentary majority.
Whatever its composition, the next government will inherit a favorable fiscal situation, courtesy of Finance Minister Wolfgang Schäuble’s astute management of the state finances and the steady expansion of the economy. In fact, the fiscal balance showed a surplus of more than $25 billion in 2016, the largest since reunification in 1990, and a fourth consecutive surplus is anticipated this year, barring an unforeseen sharp slowdown of economic activity.
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