Barclays on Germany: Thinks a ‘Grand Coalition’ or new elections is the most likely outcome

NOTE: German President Steinmeier is set to address the nation at 1330 GMT / 1430 CET

After the German coalition talks broke down, Barclays looks at the possible scenarios with regards to forming

Barclays think a ‘Grand Coalition’ or new elections are the most likely scenarios

OPTIONS:

Scenario 1) A CDU-Greens minority government:

Barclays says that given the progress made in the Jamaica coalition talks, “the Greens could form a minority government with the CDU, which would be unprecedented in post WWII German political history. This would require the support of other parties in the Bundestag on key votes, and hence make the approval of significant reforms, including on the euro area, difficult.”

Scenario 2) A return of the FDP:

There is also a possibility that the FDP returns to the coalition talks in a few day.

Scenario 3) Or new elections:

The latest poll (Politbarometer, 17 November) indicates that the outcome would not be very much different from September's election results. Angela Merkel was said to meet the German President Steinmeier, to discuss the possible options. Last weekend, he stated that he would prefer to avoid new elections.

There is an argument that the far-right AfD would benefit in this scenario, potential throwing another obstacle to forming a government at a later stage.

Additionally, German elections will not be straightforward. Per the FT: “The path to a new election is not straightforward, and first of all requires voting by the members of the Bundestag elected in September.”

“Germany’s chancellor is not directly elected in a national vote. Instead under Article 63 of Germany’s basic law the president nominates the chancellor, usually the candidate of the strongest group in parliament. He or she is then elected to office upon winning a majority of members of the Bundestag. All of Germany’s post-war chancellors attained office in this way, supported of course by having held successful coalition talks.”

The FT adds that Germany is now  in a position where Merkel cannot guarantee that said support:

“In such a situation the constitution would require further votes. The first, within 14 days, would allow a candidate to become chancellor with a majority of votes in parliament. Failing that, a third vote would be held in which the candidate with the most votes could become chancellor.”

In that scenario, it would be the President who must decide whether or not to appoint that person, who would possibly be running a minority government. Alternatively, the President could choose to dissolve the parliament.

Scenario 4) Another Grand coalition with SPD:

Given the German President’s affiliation with the SPD, he could try to convince the party to form a ‘Grand Coalition’ with the CDU for the good of the nation, Barclays writes. “A number of key issues – including the eurozone and immigration reform – will require a majority in the Bundestag in the next election cycle. 

“Martin Schulz, leader of the SDP, the second largest party following the recent election, has stated already that he interpreted the election outcome as a vote against the Grand coalition and will hence not be participating in coalition talks to form a ‘Grand Coalition’ government.”

However, the SPD has today shot down this suggestion, saying said that it is not available for a new coalition government, and it does not fear fresh elections.”

20 Nov 2017 - 12:46- Forex- Source: Barclays, FT, RANsquawk

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