German Politics: The SPD’s Turn to Make Noise

A slew of policy proposals by the SPD, Angela Merkel’s centre-left coalition partner, highlight the risk of an end of Germany’s grand coalition before the next election in 2021.

In a position paper published over the weekend, the SPD calls for “a new welfare state for a new era.” Among other things, the SPD proposes that unemployment benefits should be paid out for longer and that the minimum wage should be raised from the current €9.19 per hour to €12.

Earlier in January, SPD ministers suggested higher pensions and raising taxes for high-income earners. Such steps would partly reverse the highly successful reforms that SPD chancellor Gerhard Schröder had introduced in 2003-2005 with broad support from all mainstream parties.

But, ever since, those reforms have been very controversial in the SPD itself, partly because the SPD failed to harvest the laurels for the success of the reforms.

Meanwhile, the CDU-led economy ministry proposed to lower taxes, as the fiscal space was still ample and thereby the economy would weather the current downturn better in doing so.

What the SPD wants

While some slight corrections to the 2003-2005 reforms may be warranted, the party’s big move away from Schröder’s reforms is mostly about politics. The SPD wants to:

1. differentiate itself from its centre-right coalition partner, Merkel’s CDU/CSU,

2. raise its leverage in future coalition conflicts and

3. be prepared for snap elections.

So far, the SPD feared quitting the coalition simply because new elections would probably have left them with a lower voter share (about 15% according to current opinion polls) than at the 2017 general election (20.5%).

However, many party activists argue that the party’s poor showing in current opinion polls and bad results in regional elections in 2018 show that voters do not see the party as a credible alternative to Merkel’s CDU.

Instead more and more voters had shifted to the Greens. The party leadership seems to have adjusted to the party base.

Limited impact

We continue to see a risk of up to 30% that the battered SPD may leave Merkel’s coalition in late 2019 and thus bring down the chancellor if the SPD does badly at the European election on 26 May and three East German state elections in September and October, which looks quite likely.

While the risk of the coalition falling apart is higher with the SPD’s steady shift to the left, it would not necessarily usher new elections. More likely, Germany could end up with a “Jamaica“ coalition of the CDU/CSU, the Greens and the liberal FDP.

In any case, the economic and political impact of a more leftist SPD or even a potential change in the composition of government this year would remain limited.

German politics largely moves by a de facto consensus between the major mainstream parties who usually have to team up to pass initiatives through the upper house of parliament, the Bundesrat.

For example, the net result of the most significant change that may happen, a new coalition (CDU/CSU-Green-FDP), would be a number of new faces, an earlier closure of some coal power stations and an early abolition of the solidarity surcharge to the income tax.

All in all, it would probably amount more to tweaking at the edges than to a major policy shift.