"Merkel Will Have To Go": Bill Blain On What's Next For The Germans

“When you turn an election into a three-ring circus, there is the possibility the dancing bear will win..”

After Sunday night's shocking failure by Merkel to from a government (triggered by the Free Democrats walking out due to irreconcilable differences on refugee policy, energy policy and tax policy) the FT was quick to conclude that "Merkel faces worst political crisis of her career." And while Merkel is certainly in hot water, a more appropriate question is what's next for Germany.

According to UBS - which has a clear interest in preserving the calm - there are four possible scenarios:

  • First, Chancellor Merkel could try to re-engage with the FDP and bring it back to the table and start coalition talks.
  • Second, the CDU/CSU could try to approach the SPD to form a grand coalition, which would have an absolute majority. However, the SPD has repeatedly mentioned (again last night) that it is not willing to go for this option and prefers to be in opposition.
  • If these two options do not work (which would be the first time in post-war Germany), either a minority government (Chancellor Merkel dismissed this option on election night) or new elections could follow.

The procedure for new elections, however, involves several steps, as outlined below.

The current (grand coalition) government remains in place until a new government is formed, i.e. until parliament votes on a candidate for chancellorship proposed by the Federal President (for which there is no time limit). If no workable coalition can be found, the way towards new elections involves many steps as reported in the press. The Federal President Steinmeier must propose a candidate for chancellorship (normally, this is the candidate put forth by a majority coalition, but he is free to choose others) and parliament would vote on this candidate. If the Federal President's candidate does not obtain an absolute majority (which has never happened before in post-war Germany), parliament has 14 days to propose and vote on a candidate in a second round. If in this second round of voting no candidate obtains an absolute majority, there is a third round of voting where a candidate can be voted as chancellor with only a relative majority. If a candidate is voted with only a relative majority, the Federal President can either appoint the candidate as chancellor (implying a minority government) or dissolve parliament. In the latter case, new elections have to take place 60 days after parliament has been dissolved. At this stage, however, it is unclear whether new elections would
produce a significantly different result compared to the last election.

To be sure, UBS' view is that no matter how bleak Merke's "crisis" looks, the fallout will likely be limited, to wit:

"even though the EUR dipped on the breakdown of the Jamaica talks, the broader market reaction has been contained. With Merkel's acting government remaining in place, big political decisions on Brexit and EU issues anytime soon appear more difficult, including at the December Euro summit. If the grand coalition no longer remains an option, this could, in our view, lead to some risk-off pressure, the negative fallout for periphery markets (and a wider risk-off) should be contained."

Perhaps: for UBS' "calm and collected" outcome to be validated, the ECB may be forced to become more actively engaged in micromanaging risk again, something few have discussed yet. 

Meanwhile, as things heat up, there has been a bararge of headlines, among which:

  • GERMAN PRESIDENT URGES PARTIES TO FIND DEAL TO AVOID NEW VOTE
  • STEINMEIER: GERMAN PARTIES SHOULDN'T RETURN MANDATE TO VOTERS
  • SPD'S SCHULZ ASSUMES THERE WILL BE A NEW ELECTION
  • SPD'S SCHULZ ALSO REJECTS GRAND COALITION WITHOUT MERKEL
  • LINDNER: NO GERMAN POLICY CHANGE POSSIBLE WITH GREENS, CDU, CSU

These headline confirm that one of the 4 options highlighted by UBS has been ruled out for Merkel. The SPD’s Martin Schulz, who performed poorly at the last election, has rejected the idea of re-forming the Grand Coalition by lending his party’s support to Merkel’s government. He has also said that he assumes that there will indeed be a new election, as Citi adds.

Another option seemed to be ruled out too, as FDP leader Lindner suggested as recently as a few minutes ago that common ground cannot be found – so the Jamaica coaltion government still looks off the cards, although Merkel will no doubt be hoping to form some sort of minority government.

At the moment, this all does seem to be pointing towards new elections for Germany. Citi Economics explain:

Under Art. 63 of the German constitution, the Bundestag would first have to elect a new Chancellor upon proposal by the President, which is possible with a relative majority after 14 days of nobody getting an absolute majority. The President can then within 7 days confirm the winner or dissolve Parliament, which would lead to early elections within 60 days […] It could start soon and elections could be held probably in January at the earliest”.

In any event, for a more practical and unbiased take on what happens next in Germany, we turn to Mint's Bill Blain, who back in September correctly predicted just this outcome, when all of his far better paid peers said the odds of a negotiation failure are negligible. Here is Bill Blain with his take on "What's next for the Germans."

Ha. Macron must be creasing himself with laughter… I bet he struggled to keep a straight face as he commiserated with the (soon to depart?) Angela… Funny how the good news is all French these days…

 

And in Harare/Berlin an elderly befuddled leader doesn’t know if they are coming or going.

 

Despite triggering of Gotterdammerung, market reaction to the German electoral talks collapse is curiously muted – the Euro taken a minor spanking, and stock markets a tad-let lower.

 

I’m not really surprised at the lack of fireworks. Markets have become blasé about political noise – understanding how easy it is to over-react. It’s going to be a short holiday week, its year-end and folk are protecting what they’ve made this year. As one heads westwards, interest or cares in German politics diminishes pretty quickly? It’s just something that happens – Isn’t it?

 

Er.. actually…. what’s going on in Berlin is pretty important stuff. Or, at least it should be…

 

I’m trying to get my head round what happened and what cracked – it’s important to understand the collapse to work out what happens next… Last week chums in Berlin assured me it was a just a matter of time before Muti Merkel signed a new coalition deal. Over the weekend it all came apart.

 

It would seem the Greens and the Liberals just didn’t fancy the compromises and potential electoral suicide pact that underlies being Merkel’s stooges.

 

Back in September I warned the coalition process was likely to be far more difficult and fraxious than the market expected. I even said the chances of an outright failure to agree were as high as 50% – check out Porridge Extra Sept 25th. I was told I was a know nothing idiot (not disputing it!). But, I didn’t expect crisis this soon. My worst case was a second election triggered early next year – and Merkel squeezed out.

 

I’m going to spend some time talking around contacts and putting together some new scenarios, but I’m struggling to find much upside.

 

I suspect Merkel will have to go. The outlook is for a complete re-jig in German politics; out with the old, and in with something new(er). New coalition discussions or an election will be equally drawn out. A new administration could be vulnerable, weak and uncertain as the “leader of Europe” is entirely inward focused in coming months/years.

 

Don’t underestimate the sentiment effects on Europe. Who is going to lead the agenda re closer union, banking union and reform of the ESM, bailout and QE policies? And what about dealing with Putin, Italian elections next year, the inevitable Greece bailout blow up, renewed immigration crisis, Brexit, a blow-up with Trump, and a Frenchman to replace Draghi at the helm of the ECB looking increasingly nailed-on.

 

And I reckon the young emperor in Paris, Macron, is going to be disappointed – if he see this as his chance to re-establish French leadership at the core of Europe, he may be well disappointed. If Berlin doesn’t care.. who’s interested?

 

Perhaps not – Yoorp is a long-game.

Finally, with Merkel now fighting for her career and political survival, the EUR has yet to skip a beat, and remains solidly stuck to the 1.1770 strange attractor.

Comments

chubbar kralizec Mon, 11/20/2017 - 09:43 Permalink

Christ, this country and others have unassimilated muslims who think nothing of raping and killing the citizens and these fucking politicians are complicit in covering up their crimes to boot. The people of Germany are probably pretty fucking tired of getting nothing but excuses and PC rhetoric from the very people who are supposed to be looking out for their best interests. This is a conspiracy to break up the homogeneity of each country and thereby break up the sovereignty of each country by importing these savages. Exactly what is happening in the US.Everyone of these fucking politicians that have been pursuing these goals should be removed from office, tried for treason and shot if convicted. It isn't some fucking coincidence that every one of these leaders in the EU (and DEMs/RINOs in the US) has the same opinion on bringing these people into their country (with very few exceptions). This should be the number one topic for every citizen in these countries. They need to decapitate the leadership of the EU and their own country before they are so inundated with these immigrants that there is no going back.

In reply to by kralizec

lester1 Mon, 11/20/2017 - 08:30 Permalink

EU Queen Merkel isn't going anywhere. She's a hero to the left and socialists. She wants the EU to be like her native east Germany. In the end she will come out on top because of all the sheep following her. Hitler had the same effect on the sheep.

Sonder Mon, 11/20/2017 - 08:36 Permalink

Merkel and all those associated with her need to be lined up and shot for treason, they have done nothing to merit a peaceful end to their years. 

Matchless Mon, 11/20/2017 - 08:37 Permalink

If George Bush wouldn't have decided to get rid Saddam Hussein for no reason at all other than SH was a PITA none of this would be happening.  Due to the collapse of Iraq and everything that happened after the USA and the politics of GB followed up by the ineptness of BHO and HC left all of Africa on fire, it pretty much is our fault.  Why Germany decided to do this to themselves makes no sense, I frankly think it's agenda driven and the plan is no more sovereignty for any nation.

wmbz Mon, 11/20/2017 - 08:42 Permalink

I doubt Sow Merkel is going anywhere, I would believe when I see it.Just like on this side of the pond. We keep sending the same old country hating self serving turds back to the cesspool over and over again.

gespiri Mon, 11/20/2017 - 08:46 Permalink

If she goes, she will just play the game of musical chairs and be the head of the EU or the UN.  It's better if these people just simply disappear.

falak pema Mon, 11/20/2017 - 09:03 Permalink

Nobody can guarantee an outcome of an election : witness the Duck and Brexit.I'm sure Germany will survive a woman who has stabilised her country for 12 years, in an age where capitalism is now going belly up; precisely where it was born : Aristocratic and upper echelon led GB & robber baron USA, inspite of FDR's legacy of great generation's pain and multilateral reset to avoid the eternal repeat ; gone imperial beyond recognition since Aldous Huxley day in Dallas ; a nation born to be anti-imperial... under GW/Jefferson and with the help of Lafayette !History rhymes like the tales of the Atreus. Witness the message of God's son yesterday : the giant penis in the sky! It goes well with your avatar! 

God is The Son Mon, 11/20/2017 - 08:58 Permalink

Black Man didn't solve the world problems, Female Leader brought more Disaster, a Zionist Businessman under anti-Establiment Cirrcus.Blacks -1, Females -1, Zionists -1. Merkel, Trump, Macron, all need to good. We need an Anti-Zionist, Anti-Marxist, Anti-Zionist Media, Anti-Zionist Banking, Pro-Christian, WHITE, MALE LEADERS in Western Nations