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Where does Germany’s crisis-hit coalition go from here?

Germany's Social Democrats could end up deciding if the country faces snap elections, the leader of Angela Merkel's party said Monday, after her junior coalition partner sank into chaos over the resignation of its leader.

Published: 3 June 2019 15:16 CEST

Where does Germany's crisis-hit coalition go from here?

Andrea Nahles and Angela Merkel in the Bundestag last year. Photo: DPA

What's happened?

In an announcement that rattled Berlin, centre-left Social Democratic Party (SPD) leader Andrea Nahles said Sunday she was quitting her jobs as both party chief and head of its parliamentary group following a disastrous European election performance late last month.

“The discussions in the parliamentary group and the broad feedback from the party showed me that the support necessary for the exercise of my offices is no longer there,” said Nahles in a statement.

Andrea Nahles after her resignation. Photo: DPA

The 48-year-old said she hoped her resignation “would open the possibility that the succession can take place in an orderly manner”.

Nahles, who formerly served as Labour Minister of the Social Democrats, became head of the SPD in April 2018, after leading the party's parliamentary group since September 2017. She is the first woman to chair the party.

It appears that Nahles failed to win over voters: This graph, translated into English by Statista for The Local, shows the SPD's polling ratings since Nahles took over as party faction leader in 2017.

Will there be a snap election?

Maybe. If the SPD exits the 'grand coalition' it's currently part of along with its senior partner, the centre-right Christian Democratic Union (CDU) and Christian Social Union (CSU), then it could lead Merkel to head up a minority government, try and form an alliance with the pro-business FDP and the Greens or face a snap election.

However, some commentators have said the SPD is likely to remain in the coalition since it's in a fragile position.

Merkel, who has said she will remain Chancellor until the end of the electoral term in 2021 and others in the CDU have sought to calm nerves by saying they stand by the coalition.

But CDU chief and Merkel successor Annegret Kramp-Karrenbauer conceded Monday that whether Germany goes to the polls before the end of the electoral term would depend on the SPD's next move.

“We are ready to keep this coalition going. How the SPD behaves is its decision,” she told journalists following crisis talks within her centre-right party.

“There are good reasons to not end a government lightly, from the view of the situation in Germany but also the situation in Europe,” she said.

She warned however that given the international challenges, it would be “anything but productive if Germany were to go into a government crisis or a lengthy election campaign”.

Denying that the issue of snap elections was broached in Monday's talks, she added however that “you can be certain that the CDU is prepared for whatever comes or does not come”.

At a separate press conference, Merkel batted away speculation that her coalition was crumbling.

Insisting that she did “not see a signal of instability”, Merkel said: “At the moment I only see that the SPD has reached specific decisions which I can't say would hinder us from working.”

Annegret Kramp-Karrenbauer in Berlin on Monday. Photo: DPA

Who will lead the SPD now?

Interestingly, the leadership crisis at the SPD could not have come at a worse time for the CDU, which was itself struggling to halt a haemorrhage of voters as the younger generation shuns it in droves for the Greens.

The SPD meanwhile has been scrambling to find a new leader to replace Nahles, 48.

It was announced Monday that three SPD politicians, including two state premiers, will provisionally lead the party following Nahles' resignation.

Manuela Schwesig, Malu Dreyer and Thorsten Schäfer-Gümbel, the three vice presidents of the SPD, are set to lead the party until a successor to Nahles as party leader is elected.

The trio was revealed as the interim leaders following a meeting of the party executive board in Berlin.

The SPD's Manuela Schwesig , Malu Dreyer and Thorsten Schäfer-Gümbel. Photo: DPA

Schwesig is state premier in Mecklenburg-Western Pomerania, while Dreyer is premier in Rhineland-Palatinate. Meanwhile, while Schäfer-Gümbel is the leader of the opposition SPD faction in Hesse state parliament.

The SPD, Germany's oldest political party, is reportedly not due to elect a new party leader until December's party conference. But it is likely that a decision will be taken to move the vote forward. The party's executive board is due to meet later this month.

Why is the SPD imploding now?

It's been a long time coming and has been predicted by many.

In the May European Parliamentary election, support for the party nearly halved to 15.8%, while the party lost its traditional stronghold of Bremen, coming in second to CDU.

But the alliance between Merkel's Christian Democrats and the SPD was fragile from the start. Wounded by an election drubbing in 2017 in which the SPD gained just 20.5 percent of the vote, the party had initially sought to go into opposition, but was reluctantly coaxed into renewing a partnership with Merkel.

Happier times? Merkel with Nahles in March. Photo: DPA

Many within the party however remained wary of continuing to govern in Merkel's shadow (they had been in a coalition with the CDU since 2013) and the parties have since lurched from crisis to crisis.

Yet it should be noted that Nahles (and the SPD) have helped shape government policy, such as the introduction of a nationwide minimum wage. The party was also key to pushing through the legalization of same sex marriage in Germany.

What else is the SPD thinking about?

The SPD has been staring at the prospect of another debacle in three upcoming state polls in Saxony, Brandenburg and Thuringia, 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 nationwide the Greens 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 environmentalist platform.

In a national survey released Saturday, the Greens came in top for the first time – enjoying slightly more support than Merkel's CDU-CSU alliance.

The environmentalist party had a lead over the SPD of around 15 percentage points.

By Hui Min Neo and Rachel Loxton

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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.