Angela Merkel’s paradoxical victory

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Angela Merkel’s victory in the German elections last night is both a triumph and a paradox. In 2005 she campaigned as an economic liberal but ended up in a coalition with the Social Democrats, which forced her towards the centre. This time around she campaigned as a centrist and a champion of the traditional German social market economy, and has ended up in a coalition with the economic liberals of the Free Democrats.

So the next question is will this new coalition finally free Merkel to be Merkel, and to push through the free-market policies that she put at the centre of her programme in 2005? Or has the chancellor really changed?

I think there are two big tests to look out for. First, tax cuts; both the CDU and the Free Democrats promised tax cuts – will they, can they, deliver? Second, what are they going to do about the Opel bail-out. Securing the future of a big car manufacturer was an important achievement for Merkel in the last days before the vote; but leading figures in the Free Democrats expressed misgivings about such a costly, anti-market measure. Whose views will prevail?

From Britain, where we face the prospect of spiralling tax rises, I can only envy those lucky Germans with their promise of lower taxes. But I wonder whether Merkel can really deliver. It is true that Germany’s budgetary position is slightly less dire than that of the UK – but it’s still pretty bad. Unemployment seems likely to rise over the next few months, which will put a further strain on the federal budget. The young professionals who voted Free Democrat and feel oppressed by the German tax burden will push for the coalition to deliver on its promises. But I suspect the tax cuts might be fairly token, at least at first.

I also think it highly unlikely that the new coalition will reverse course on the Opel bail-out – whatever the Free Democrats may think. The only thing that might persuade the German government to change course is pressure from Brussels and from Germany’s “European partners”.

The coalition could, of course, attempt to improve the business climate in other ways, by cutting regulation. But, even after a victory for the centre-right, a deregulatory splurge seems to run against the temper of the times. It is true that the vote for the SPD was disastrously low. But the hard Left party did well, and so did the Greens. And the CDU has not campaigned as an economically liberal party. Germany’s economic liberals (the Free Democrats) are in power; but they are not in the majority.

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