How Germany’s Next Government May Shape Up: Coalition Scenarios

(Bloomberg) -- Olaf Scholz has guided the Social Democrats to within touching distance of toppling Chancellor Angela Merkel’s conservatives from power for the first time since 2005.

But winning the election would only be a first step for the center-left SPD, which is leading Merkel’s CDU/CSU bloc by five points in one poll. While the Greens led by Annalena Baerbock are likely to be willing partners, that won’t be enough to secure a majority. That leaves the door open for conservative contender Armin Laschet.

With political loyalties in flux after 16 years under Merkel, coalition building is more complex than ever. Five parties stand a chance of playing a role in government after the Sept. 26 vote, with only the far-right Alternative for Germany shut out.

Here’s a look at the main options, named according to the traditional party colors of red for the SPD, black for the CDU/CSU, green for the Greens, yellow for the liberal Free Democrats and a darker shade of red for the anti-capitalist Left party:

Scholz as chancellor backed by Greens, pro-business FDP

If the Social Democrats can maintain their lead in the polls, Scholz will likely be asked by President Frank-Walter Steinmeier to form a government. An SPD-led coalition with the Greens and the FDP -- known as the “traffic light” -- is the most likely scenario, although the liberals have distanced themselves from such an alliance without ruling out it out completely.

Both the SPD and the Greens back looser budget policy, at the domestic as well as the European level. Scholz sees the EU’s coronavirus recovery fund as a first step toward a common debt mechanism for the bloc. The pro-business FDP would probably push back against higher spending and increased borrowing and lobby for a return to a stricter budget policy.

Laschet pulls off comeback win, rules with Greens, FDP

A coalition led by Laschet’s conservatives with the Greens and the FDP would only come into play if he can pull off what would be a spectacular turnaround in the polls. Four years ago, efforts failed to form a Jamaica coalition -- named after the colors of the Caribbean island’s flag -- because FDP Chairman Christian Lindner flounced out of the talks.

Lindner is unlikely to risk that again, which means there would be a greater chance of success. The difference this time is that the Greens would probably be the second-strongest force, and might be less willing to sign up, particularly as Lindner blamed them for the failure of negotiations after the last election.

Both the conservative bloc and the FDP would aim for a quick return to a balanced budget and the re-imposition of the “debt brake,” a limit on borrowing enshrined in Germany’s constitution. This could cause conflict with the Greens, who want a 10-year investment program worth 500 billion euros ($591 billion) and a loosening of the debt restrictions.

Conservatives in opposition with left-wing parties joining forces

A leftist alliance between the SPD, the Greens and the Left is one of the most controversial coalitions under discussion. The Left, which wants Germany to leave NATO and has roots in East Germany’s communist party, has never played a role in federal government. But if the FDP refuses to join an administration with the SPD and Greens, a coalition with the Left party might be Scholz’s only option.

For investors, such an alliance could lead to less-favorable conditions for doing business. In Berlin, for example, the red-green-red state government enforced a rent cap that was later overturned by Germany’s Constitutional Court.

Another reluctant ‘Grand Coalition,’ this time with the Greens

A coalition of CDU/CSU, SPD and the Greens is also a mathematical possibility. The Kenya coalition, named after the African nation’s flag, is unlikely as the Social Democrats have indicated that they are unwilling to join another “grand coalition” with the conservatives. However, if they were in a position to lead such an alliance, they might change their minds. It remains to be seen if the conservatives would accept a subordinate role under Scholz as chancellor.

An improbable ‘Grand Coalition’ including the Free Democrats

Even more unlikely would be a “Germany” coalition of CDU/CSU, SPD and FDP -- whose colors match the national flag. Lindner has been an outspoken critic of Merkel’s three “grand coalitions” with the Social Democrats, and his supporters would see it as a breach of faith if he agreed to join them in government.

Whatever combination of parties gets to govern in the end, one thing is for sure: the coalition talks will again be lengthy and complicated. After the last election in 2017, it took about five months for a new government to take office. According to the constitution, Merkel will remain as chancellor until a replacement administration is approved by the Bundestag.

If the talks drag on beyond Dec. 16, a national record will be broken: Merkel will have been in power longer than her CDU predecessor and former mentor Helmut Kohl, and would thus become Germany’s longest-serving chancellor.

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