Germany's "New" Government

TWO months have passed since Angela Merkel, the German chancellor, won a parliamentary election overwhelmingly, and yet she still struggles to form a new government. The most important country in the European Union is thus being run by a caretaker cabinet, unable to take important decisions. Worse, Mrs Merkel’s effort to negotiate a “grand coalition” between her own centre-right camp and the centre-left Social Democrats (SPD) seems to be veering in the wrong direction.

Could the talks fail entirely? Sigmar Gabriel, the SPD’s boss, and other leading Social Democrats are noisily making demands for Mrs Merkel “to deliver” concessions. The SPD got 25.7% of votes compared with Mrs Merkel’s 41.5%. Mrs Merkel’s supporters are growing frustrated. “I now see the SPD winning,” worries Carsten Linnemann, the leader of the pro-business wing in Mrs Merkel’s party. Horst Seehofer, the conservative premier of Bavaria, warns the SPD against trying to turn the election result “on its head,” implying that he would prefer new elections to capitulation in the negotiations.

The bizarre situation has arisen because Mrs Merkel, her strong showing notwithstanding, fell just short of a majority of seats. The other three parties in parliament are shades of left: the SPD, the Greens and Die Linke, which descends from the Communist Party of East Germany. Talks with the Greens failed. Die Linke is out of the question. That leaves the SPD. But its members loathe the idea of a second grand coalition because they fared badly with voters after they co-operated with Mrs Merkel in 2005-09.

This is why Mr Gabriel, needing to cement the support of his own base, took the unprecedented step of letting the SPD’s 470,000 members vote on whether to approve a coalition contract. Tactically, this was a masterstroke, because he can use the threat of this grassroots referendum to beat more leftist concessions out of Mrs Merkel. Strategically, it is dangerous, because the SPD’s blue-collar base may actually reject a deal when the votes are counted on December 14th.

Irritating Mrs Merkel even more, Mr Gabriel made another concession to the SPD’s left wing: a formal resolution on November 14th to be open in future to coalition talks with Die Linke. The two “red” parties used to detest each other, Die Linke considering the SPD sell-outs to capitalism and the SPD viewing Die Linke as a chaotic troupe of Marxists nostalgic for East Germany and dangerously hostile to NATO and America. Now, however, there is speculation that the SPD could break a coalition with Mrs Merkel in mid-term and go on to form an all-left government, unprecedented at the national level, dubbed “R2G” for red-red-green.

Of the policy compromises leaking out of the coalition talks so far, most bear the leftist stamp of the SPD. Most prominent is the SPD’s demand for a national minimum wage of €8.50 ($11.50)—a departure from the German tradition of letting unions and employers negotiate over wages in each industry. A wage floor at this rate would cost jobs, particularly in eastern Germany, where pay and productivity still lag behind those in the west of the country.

Other SPD demands include a partial backtracking from the successful labour-market reforms begun a decade ago and known as Agenda 2010 (and passed under a Social Democratic chancellor, Gerhard Schröder). On top of that, pensions are to be raised for mothers, the poor and others. The pension age, raised to 67 in the previous grand coalition, is now to be lowered again for specific groups, in some cases to 63. Temporary surpluses in the pension trust fund would be used to dole out more goodies rather than to reduce contributions, as the law requires. Rent controls of some sort are coming, rather than less red tape to encourage more construction.

The five-member German Council of Economic Experts, the country’s most prestigious panel, this month issued a scathing warning against these measures: “The withdrawal or watering down of past reforms will place a burden on future generations, as well as weakening Germany’s position as a country to invest in.” The leaders of labour unions and pension and health-care administrators also penned a warning to Mrs Merkel. The big carmakers and employer organisations chimed in. Even Germany’s central bank, perhaps its most respected institution, criticised the plans for the minimum wage.

Not all the SPD’s demands are misguided. Liberalising the laws on dual citizenship and gay marriage would be real progress (alas, this is where Mrs Merkel seems to be resisting most). The effects of a quota to fill at least 30% of corporate supervisory boards with women are harder to predict, though business leaders warn that in some industries this would be difficult. Where important reforms are needed most, especially in energy policy, the coalition partners are merely dabbling.

The details in all policy areas will only become final once the negotiations end on November 27th. Even then they may change once the new government actually attempts to turn them into laws. But the more Mrs Merkel diverts the SPD’s leftward push now, the less likely the SPD’s members will be to approve the deal. Germany thus looks destined either to be governed with mediocre policies or to suffer months of uncertainty and paralysis, ultimately leading to new elections.