2013 German Federal Elections and German Eurozone policy

11 September 2013

Who will win the 2013 German Federal Elections?

The 2013 German Federal Elections remain a tight-race; with the most likely outcome either being a continuation of the current centre-right coalition (CDU/CSU-FDP); or a grand coalition (CDU/CSU-SPD). Other options are also still on the table, however, including a centre-left coalition (SPD-Greens) with the passive support of far left party, Die Linke.

There is a small chance of the anti-euro party, Alternative für Deutschland (AfD), making it into the Bundestag. However, given the possibility of opinion polls underestimating the party’s support, this is incredibly difficult to call.

Germany’s Eurozone policy unlikely to change

Of the nine proposals currently floating about to solving the Eurozone crisis, Open Europe expect clear movement in only one or two areas, including the most important but most unclear: the proposal for a single Eurozone resolution authority for banks. Germany faces the fundamental question of whether to negotiate and work within the framework presented by the European Commission, or move outside EU structures and create an ad-hoc organisation. Whichever the new government chooses could set the tone for the future of the eurozone.

Even under a grand coalition, after the 2013 German Federal Elections, Germany is unlikely to significantly depart from its current emphasis on austerity – any change is at most going to be superficial with Germany pushing the same policy in a slightly different package. Ultimately, such an approach is driven by Germany’s own experience with deep structural reform as well as the broad support austerity enjoys from the general public.

German politicians and the general public are both keen on stronger central Eurozone control over taxation and spending as a prerequisite for any further financial aid to struggling members of the single currency. Such beefed-up supervision and enforcement could well require EU treaty change in some form. A Merkel-led government may well push for a formalised “competitiveness pact” after the elections, whereby struggling Eurozone countries commit to reforms in return for aid.

The German position on further Eurozone aid to Greece and/or Portugal is unlikely to shift much. All parties broadly accept the need for a third Greek bailout, although all the main parties are keen to delay the decision until after the elections. The CDU/CSU and SDP both oppose a further debt write-down for Greece. With 75% of Greek debt now owned by taxpayer-backed institutions, a write down would likely cause direct losses for German taxpayers, in turn potentially causing a massive popular backlash and significant problems at the German Constitutional Court. In any case, some form of assistance for Greece and Portugal looks likely, no matter the government in office.

Movement on debt pooling could happen under a centre-left coalition, (unlikely) or a grand coalition with a strong SPD presence – with a debt redemption fund, involving temporary debt pooling, being the only workable option. Even so, it will be a huge task to sell it to German voters, 64% of whom oppose debt pooling. It would also have to jump over many constitutional hurdles. Open Europe still holds it as an outside possibility.

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