Before the German election, the air was full of exaggerated expectations of a new wave of radical economic reforms after a sweeping victory for Angela Merkel and her centre-right coalition of Christian Democrats and liberals. They would have been disappointed.
Now that the day has gone and neither left nor right can command an outright majority in a hung Bundestag, the mood has switched to foreboding that all prospect of reform is dead and the sluggish German economy will grind to a halt. Such a conclusion is equally exaggerated. Yet it pervades not only many parts of the media but even the inner sanctums of government in capitals such as London and Washington.
The outcome is certainly uncomfortable, not least for the political leaders in Germany who will now have to sit down and negotiate a coalition agreement with erstwhile enemies on the campaign trail. It may mean that neither Merkel nor Gerhard Schroeder, the outgoing chancellor, will end up leading the next government.
The one conclusion that can be drawn is that the talks will last for weeks, if not months. Clear government policies from Berlin, on international affairs as on the domestic front, will simply be on hold.
Reform agenda
That is certainly an embarrassment for Britain's Tony Blair, currently in the chair of the European Union, who was confidently expecting Merkel to emerge the victor. He wanted her to back a revived economic reform agenda for the EU. Instead, there may be no progress on either long-term financing of the EU budget or how to proceed after the French and Dutch No votes on the EU constitutional treaty. If there is no clear line from President Jacques Chirac in Paris, either, then the British presidency will have precious little to show for its pains at the end of the year.
Back in Germany, however, they are used to long drawn-out negotiations to get a government in harness. It happens regularly in the German Lander, where "grand coalitions" between Christian Democrats (CDU) and Social Democrats (SPD), or "traffic light" coalitions between the red (SPD), yellow (the liberal Free Democrats [FDP]) and green (the environmentalist Greens) have been cobbled together several times. The culture of compromise is well established. It may not be pretty but it forces the participants to focus on the essential agenda on which they can agree.
It has certainly worked for Germany in the past. The one previous "grand coalition" between 1966 and 1969 was not the great failure some seem to believe today. It was a notable success in pulling the country out of economic recession and balancing the budget after a period of worsening deficits in the mid-1960s. That was thanks to the unlikely but effective combination of Franz-Josef Strauss, the pugnacious Bavarian conservative leader, at the finance ministry, and Karl Schiller, an austere Social Democrat, at economics.
A similar combination (they were known as Plisch and Plum loosely translated as Splish and Splash after two dogs in a children's story) might be just what Germany needs today. Indeed, their 1967 Law for Promoting Stability and Growth sounds remarkably appropriate when the present German government has just ridden roughshod over the stability and growth pact that underpins European monetary union.
On that previous occasion, however, the SPD joined the CDU in power determined to show it was fit for government. Having done so, Willy Brandt was able to lead it to victory (with the FDP) in 1969. The mood is different today, with the SPD torn between left and right wings over the Agenda 2010 reform programme introduced by Schroeder.
All the parties in the Bundestag, with the exception of the hard-line Left group of SPD rebels and former communists, are committed to economic reform to cut unemployment, boost growth, and curb the budget deficit. They agree broadly on what needs reform taxation, pensions, the health service and the labour market but not on how to do it.
From Merkel's point of view, the best deal would be a previously untried alliance of her own party, the FDP and the Greens a so-called "Jamaica coalition" of black, yellow and green.
Keen on reforming
The Greens are keen on reforming the budget, taxation and social security. They are more open to labour market deregulation than the SPD. They are budget disciplinarians who do not believe in making the next generation pay for today's spending. That would seem to fit quite well. The differences would be over industrial policy, nuclear energy, eco-taxes and the like, and with the strong pacifist wing in the party. Joschka Fischer, the outgoing foreign minister, says he would not take part.
They would no doubt make uneasy bedfellows but they would have a clear and limited agenda. A grand coalition between CDU and SPD would be more fractious, with the SPD constantly fearful of losing more support to the Left. Yet a grand coalition is the most popular choice for voters, and the public pressure is for a deal to be done.
They both know they have to cut unemployment, with a special focus on the eastern Lander, boost economic growth, and take drastic action to curb the budget deficit. Of course it is easier said than done. But if Plisch and Plum could do a deal, it cannot be beyond the wit of their 21st century successors.
- Financial Times
Gulf News
