Grand Coalition: The only game in town

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The announcement came shortly before midnight on Tuesday: there will be no ruling coalition between the Greens and Merkel’s Christian Democratic Union (CDU). No-one wants new elections, the Greens and the Social Democrats (SPD) reject the notion of a joint coalition with the Left Party, and Germans almost unanimously dismiss the idea of a minority government by the CDU. So it should be no surprise that SPD and CDU struck a deal today and agreed to formally start coalition talks.

The key questions now revolve around who gets what, with the Finance Ministry being the key bone of contention. Current occupant Wolfgang Schäuble is refusing to budge, but the conservative wing of the SPD has already announced that Social Democrat possession of the Finance Ministry is a prerequisite for a "grand coalition".

Evidently, the Finance Ministry has replaced the Foreign Ministry as the most sought-after posting beside the chancellorship. Whereas Joschka Fischer in 1998 and Guido Westerwelle in 2009, as junior partners in a ruling coalition, were elated to get the Foreign Ministry, this is no longer sufficient by itself to tempt the Social Democrats into signing a coalition agreement. Indeed, some argue it was a major mistake of the Liberals in 2009 to not go for the Finance Ministry, and one which has contributed to their spectacular fall from grace. 

This is symptomatic of the shifting balance of power within Germany during the ongoing euro crisis. After the Chancellery, the Finance Ministry has become the de-facto seat of not only economic, but also political power across the eurozone. Today, the Finance Minister is not only responsible for domestic issues but also makes economic decisions which affect the entire European economy. That the two policy areas "Europe" and "finance/economics" are increasingly entwined has been clearly recognised by the SPD leadership, who are considering merging the positions of the deputy party chairmen responsible for these topics.

In light of the political impact of pressing economic questions about the role of the European Central Bank, further bail-out packages and banking union, much more attention is now paid to various crisis meetings and economic summits where Germany is the key figure as opposed to any number of foreign tours and UN speeches the foreign minister makes. Crucially, from a legal standpoint, the finance minister also has a right to veto any financial decisions made by the government, even if this opposes the will of the chancellor. The current struggle for the Finance Ministry thus confirms that the German priorities are more intensely focused than ever on economic questions, to the neglect of an independent and value-based foreign policy, let alone a cohesive political strategy to resolve the EU’s institutional crisis.

All the more pity then that European topics play little to no role in the negotiations around forming a governing coalition. As during the election campaign itself, Europe is the elephant in the room; with the difference that this time the "Alternative für Deutschland" is not there to provoke a debate about the future shape of Europe. Instead, the largest parties bicker about domestic problems, in particular the thorny issues of a universal minimum wage and increased taxation for the wealthy.

A resolution being mooted in some quarters is that the Social Democrat and former Foreign Minister Steinmeier could move into the Finance Ministry, while Schäuble moves to the Foreign Ministry. The gravitas Schäuble would bring to this position could indeed go some way to recovering some of the prestige the Ministry has lost in last four years.

There is some suggestion that, regardless of who ends up in the Finance Ministry, the actual policy is likely to be similar. It is true that the SPD and CDU differ on topics like the neutralisation of debt, joint liability arrangements and whether debt redemption funds of the European Stability Mechanism should be used to support troubled banks. Nonetheless, both parties seem to agree (at least in private) on the need for measures to spur growth in southern Europe, a financial transaction tax and increased regulation of financial markets.

Given this overlap on foreign policy issues between the parties, the central concern from a European perspective is that negotiations are wrapped up swiftly so that the new government can return its attention to burning questions around the future of the eurozone.

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