x Abu Dhabi, UAEThursday 27 July 2017

German 'grand coalition' would be good for Europe: analysts

Angela Merkel must now start the process of haggling with potential partners to find a governing alliance for Europe’s biggest economy.

FRANKFURT // Germany will not change course on Europe following weekend elections, Chancellor Angela Merkel said yesterday, even as analysts suggested she could adopt a slightly softer tone towards austerity-hit partners.

Mrs Merkel and her conservatives scored their best result in 23 years in general elections on Sunday, winning 41.5 per cent of the votes, not far off an absolute majority.

But Mrs Merkel must now start the process of haggling with potential partners to find a governing alliance for Europe’s biggest economy.

And a so-called “grand coalition” with the Social Democratic Party (SPD), a power-sharing arrangement Mrs Merkel used in her first term between 2005 and 2009, is looking the most likely outcome.

Asked by reporters at her Christian Democratic Union (CDU) headquarters whether Germany would now be more flexible in its demands for structural reforms and balanced budgets from European partners, she responded: “Our course on European policy will not change.”

“We must come out of the crisis stronger.”

Germany had been considered the “sick man of Europe” around a decade ago but is now “an anchor of stability” in the EU.

“The others can also achieve that,” said Mrs Merkel, who has insisted on stringent reforms in return for bailouts in debt-wracked eurozone countries.

With regard to a possible coalition with the SPD, Mrs Merkel said: “We are open for discussions.

“I had a first contact with the SPD chairman who understandably asked that the SPD first hold its party meeting on Friday.”

But she said she did not rule out talks on a potential coalition with the ecologist Greens.

An alliance with the Greens would be particularly complicated — there’s only ever been one conservative-Green state government, in liberal Hamburg, and it collapsed. There are wide policy differences between the two parties, though the Greens have moved closer to the centre since they were founded by anti-capitalists, pacifists and environmentalists 33 years ago.

“If Merkel wants, we can of course have exploratory talks with each other,” the Green chairwoman Claudia Roth said. But she said it would be difficult: “We are not a party that, because Merkel is missing a few votes, will clean up after a lost coalition partner.”

Analysts believe that a centre-right, centre-left coalition between the CDU, its Bavarian allies the CSU and the SPD will herald no major policy changes, particularly with regard to Europe.

“Most Germans want a grand coalition led by Merkel according to opinion polls,” said the Berenberg Bank chief economist Holger Schmieding.

“The impact on policy will be small, with hardly any change on the European level and a modest tilt towards a centre-left agenda at home.”

“Overall, the election outcome should be interpreted fairly positively: a grand coalition would have large parliamentary majorities in both houses of parliament,” said analysts at Citi Research in a note to investors.

UniCredit economist Andreas Rees said that “a renewed grand coalition will continue to steer a euro-friendly course”.

“It could even be the case that the new government is (marginally) more constructive on Europe than before,” he said.

* Agence France-Presse with additional reporting by the Associated Press