With less than three months before the German elections take place, Chancellor Merkel's party is still, by a wide margin, the most popular with voters. However, based on the latest polls, Goldman Sachs notes that Chancellor Merkel would need a coalition partner to form a government. Her current coalition partner, the FDP, has weak support, making a so-called 'Grand Coalition' with the Social Democrats still the most likely outcome - if Europe can just hold itself together for a few more weeks that is.
Via Goldman Sachs,
An Update on the German Elections
Chancellor Merkel's CDU/CSU doing well in the polls - but a coalition partner would be needed
The latest polls continue to show Chancellor Merkel's conservative CDU/CSU as by far the most popular party with voters. Its share of votes ranges, depending on the polling institute, from 38% to 43%. The opposition SPD comes in second by a wide margin, ranging from 22% to 26% in the polls. The Greens are in third place with 13%-14% of votes, while the Left Party is in the fourth spot (6% to 8%). Chancellor Merkel's coalition partner, the FDP, is running in fifth place, with polls showing its support at between 4% and 6%.
It is noteworthy that in the poll readings of the past couple of months the opposition has failed to gain momentum as the election campaign has increased in intensity. As the previous two elections have shown, poll readings can still change significantly, but it is difficult to see how the SPD could catch up with the CDU/CSU in a meaningful way. Some of the lacklustre performance of the SPD may reflect a further move of the CDU/CSU to the left. The election platform of the CDU/CSU, for example, now includes the introduction of a minimum wage and a cap on rent increases. Chancellor Merkel has more or less openly said that she is willing to adopt positions of the opposition that prove to be popular. While not everybody in her party is happy with this rather pragmatic approach - and it remains to be seen how much will be implemented in practice - this strategy has proven to be quite successful at the polls.
Another noteworthy point in reading the latest polls is that the newly founded anti-Euro party, Alternative for Germany (AfD), has failed to gain any traction and is still polling at between 2% and 3%. There appears to have been no rise in anti-European sentiment among the general public and, according to different polls, a large majority of Germans opposes a reintroduction of the Deutschmark.
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As strong as the results for Chancellor Merkel's party look, she would still need a coalition partner to be able to form a government after the September elections. Exhibit 2 shows the various potential coalition combinations that we view as possible from a political perspective. Owing to the mechanics of the German election system (parties polling less than 5% of votes do not enter the Bundestag), winning 46% of the total of votes cast can be enough to command a majority in the Bundestag (although additional aspects of the electoral system make it difficult to give an exact number ex ante).
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The polls suggest that a 'Grand Coalition' between the CDU/CSU and SPD is still the most likely outcome, although a continuation of the current coalition has become more likely recently as the FDP seems to be stabilising at the 5% threshold. On the latest poll results, a Grand Coalition would command a strong majority in the Bundestag, and potentially even a two-thirds majority that would allow a change of the constitution.
In the past, the FDP has occasionally benefited from strategic voting from CDU/CSU voters who 'lend' their vote to the FDP to help it pass the 5% hurdle. But if the CDU/CSU polls around the 40% level, such strategic voting would simply become a zero-sum game among the centre-right parties.
A so-called black-green coalition between the CDU/CSU and the Greens would also have a comfortable majority of seats in parliament, judging by the latest polls. However, we view such a coalition as fairly unlikely given the differences between the two parties in important areas.
Leading figures of the SPD have ruled out a coalition with the Left Party, making a three-party coalition between the parties on the left of the political spectrum rather unlikely. That said, a Grand Coalition with the Conservatives could increase tensions within the SPD significantly and we would not rule out that the party could reconsider its stance after election day. Lastly, there is the possibility of a 'traffic-light' coalition (to reflect the colours used by German parties) of the SPD, Greens and FDP. While all three parties have considered such a coalition in the past, we view a 'traffic-light' coalition as unlikely in this election, even if it were the only option for the SPD to avoid a Grand Coalition and for the FDP to stay in power.