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Crisis talks as Merkel’s coalition suffers new blow

Parties in German Chancellor Angela Merkel's government are set to hold separate crisis talks on Monday, after her fragile coalition suffered a fresh blow as the leader of junior partner SPD quit.

Published: 3 June 2019 08:31 CEST

Crisis talks as Merkel's coalition suffers new blow

Chancellor Angela Merkel and Andrea Nahles talk in March 2019. Photo: DPA

In a shock announcement on Sunday, centre-left Social Democratic Party (SPD) leader Andrea Nahles said she was stepping down from her party's top jobs following late May's European elections drubbing.

The 48-year-old's decision left the SPD in disarray, and raised questions over the survival of Merkel's coalition.

Whether the unhappy partnership between Merkel's centre-right Christian Democratic Union and its sister party the Christian Social Union (CDU/CSU) alliance and the SPD can go on until the end of its term in 2021 could now hinge on Nahles' successor.

Anxious to calm the jitters over her government, Merkel said on Sunday that it will push on and fulfil its mandate.

“What I want to say for the government is that we will continue with our work with all seriousness and with great responsibility,” the veteran leader said in a statement to the press.

The leadership crisis at the SPD could not have come at a worst time for Merkel's CDU, which was itself struggling to halt a haemorrhage of voters as the younger generation ditched it in droves for the Greens.

Voices are growing louder within the coalition for the parties to part ways.

Harald Christ, deputy chief of the SPD's economy forum, warned that “Nahles stands for the existence of the GroKo – whose stability is now in question.”

“In my view what comes next is the end of the GroKo – everything else leads nowhere,” he told Bild daily.

The deputy leader of the CDU-CSU alliance, Carsten Linnemann also warned in an interview with RedaktionsNetzwerk Deutschland that “if we are unable to progress with the SPD, then we should draw a line under this and ask ourselves if continuing with the GroKo still makes sense.”

Crisis to crisis

The alliance between Merkel's Christian Democrats and the SPD was fragile from the start.

Wounded by an election rout in 2017, the SPD had initially sought to go into opposition, but was reluctantly coaxed into renewing a partnership with Merkel.

Many within the party however remained wary of continuing to govern in Merkel's shadow, and the coalition has lurched from crisis to crisis.

The SPD, Germany's oldest party, had initially planned to re-examine the alliance in the autumn — half-way through the four-year mandate.

But with a free-fall in its ratings unending, the SPD's timetable may yet be accelerated.

After last Sunday's European election, the SPD has been staring at the prospect of another debacle in three upcoming state polls in Saxony, Brandenburg and Thueringia, where the far-right AfD is poised to make
significant gains.

With its anti-immigration campaign, the AfD in 2017 drew voters angry with Merkel's decision to let in more than a million asylum seekers into Germany.

But it is now the Greens which may have become the biggest headache for the SPD.

While sharing the centre-left position on the political spectrum, the Greens are proving more attractive to young voters because of their environmental platform.

In a national survey released Saturday, the Greens came in top for the first time – enjoying more support than Merkel's CDU-CSU alliance. The environmental group had a lead over the SPD of around 15 percentage points.

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Output is expected to expand 0.3 percent this year, the economy ministry said, up from a prediction of 0.2 percent in February.

The slightly rosier picture comes after improvements in key indicators — from factory output to business activity — boosted hopes a recovery may be getting under way.

The German economy shrank slightly last year, hit by soaring inflation, a manufacturing slowdown and weakness in trading partners, and has acted as a major drag on the 20-nation eurozone.

But releasing its latest projections, the economy ministry said in a statement there were growing indications of a “turning point”.

“Signs of an economic upturn have increased significantly, especially in recent weeks,” Economy Minister Robert Habeck said at a press conference.

The ministry also cut its forecast for inflation this year to 2.4 percent, from a previous prediction of 2.8 percent, and sees the figure falling below two percent next year.

“The fall in inflation will lead to consumer demand — people have more money in their wallets again, and will spend this money,” said Habeck.

“So purchasing power is increasing, real wages are rising and this will contribute to a domestic economic recovery.”

Energy prices — which surged after Russia’s 2022 invasion of Ukraine — had also fallen and supply chain woes had eased, he added.

Several months ago there had been expectations of a strong rebound in 2024, with forecasts of growth above one percent, but these were dialled back at the start of the year as the economy continued to languish.

‘Germany has fallen behind’

But improving signs have fuelled hopes the lumbering economy — while not about to break into a sprint — may at least be getting back on its feet.

On Wednesday a closely-watched survey from the Ifo institute showed business sentiment rising for a third consecutive month in April, and more strongly than expected.

A key purchasing managers’ index survey this week showed that business activity in Germany had picked up.

And last week the central bank, the Bundesbank, forecast the economy would expand slightly in the first quarter, dodging a recession, after earlier predicting a contraction.

German Economics Minister Robert Habeck

Economics Minister Robert Habeck (Greens) presents the latest economic forecasts at a press conference in Berlin on Wednesday, April 24th. Photo: picture alliance/dpa | Michael Kappeler

Despite the economy’s improving prospects, growth of 0.3 percent is still slower than other developed economies and below past rates, and officials fret it is unlikely to pick up fast in the years ahead.

Habeck has repeatedly stressed solutions are needed for deep-rooted problems facing Germany, from an ageing population to labour shortages and a transition towards greener industries that is moving too slowly.

“Germany has fallen behind other countries in terms of competitiveness,” he said. “We still have a lot to do — we have to roll up our sleeves.”

Already facing turbulence from pandemic-related supply chain woes, the German economy’s problems deepened dramatically when Russia invaded Ukraine and slashed supplies of gas, hitting the country’s crucial manufacturers hard.

While the energy shock has faded, continued weakness in trading partners such as China, widespread strikes in recent months and higher eurozone interest rates have all prolonged the pain.

The European Central Bank has signalled it could start cutting borrowing costs in June, which would boost the eurozone.

But Habeck stressed that care was still needed as, despite the expectations of imminent easing, “tight monetary policy has not yet been lifted.”

In addition, disagreements in Chancellor Olaf Scholz’s three-party ruling coalition are hindering efforts to reignite growth, critics say.

This week the pro-business FDP party, a coalition partner, faced an angry backlash from Scholz’s SPD when it presented a 12-point plan for an “economic turnaround”, including deep cuts to state benefits.

Christian Lindner, the fiscally hawkish FDP finance minister, welcomed signs of “stabilisation” in the economic forecasts but stressed that projected medium-term growth was “too low to sustainably finance our state”.

“There are no arguments for postponing the economic turnaround,” he added.