Six Lessons From Merkel's Impasse and What They Mean for Germany

(Bloomberg) -- Seventeen weeks after Germany’s inconclusive election, Angela Merkel’s fourth term as chancellor isn’t quite in the bag, but the extended period of political deadlock does look to be ending. Here are some lessons from the impasse in Europe’s biggest economy that has exposed Merkel’s weaknesses and strengths amid a shifting political landscape.

Times Are Changing

Merkel has kept her hold on power for 12 years by occupying the political middle ground, sticking to pro-European policies and finding partners to govern with who broadly shared that outlook. But the days of steady, stable coalition-building in Germany are over, hastened by the refugee crisis of 2015-16 that upended the political landscape. A fragmented parliament, acrimonious partisan standoffs and factional fighting over migration within Merkel’s bloc make Berlin look more like Rome or Washington these days. With the Social Democrats still wavering and the pro-market Free Democratic Party having pulled out of previous coalition talks, only Merkel’s bloc is showing it wants to govern. Yet its worst election result since 1949 makes her more dependent than ever on a coalition partner to govern with a reliable majority in parliament. It’s a paradox with no obvious solution, neither for Merkel nor any other political leader.

Six Lessons From Merkel's Impasse and What They Mean for Germany

Her Enemies are Bolder

After more than a quarter century at the highest level of German politics, it’s little surprise that Merkel has enemies strewn in her wake. September’s unconvincing election result has emboldened them to step out of the shadows. Critics blame her open-borders refugee policy for driving voters into the arms of Alternative for Germany, the first far-right party to win Bundestag seats since the 1950s. They view her as too liberal and out of step with shifts to the right in neighbors such as Austria and the Netherlands.

Questions about Merkel’s hold on power have intensified since the Free Democrats walked out on her and their leader, Christian Lindner, hinted he might return to the table if Merkel quit. Jens Spahn, an acting deputy finance minister who warned in a 2016 newspaper interview against treating Muslims with “kid gloves,” has blamed other CDU leaders for bungling the refugee crisis. The whispering behind Merkel’s back is louder but no-one of consequence is publicly calling for her head yet.

Criticism Is Risky

Polls suggest Merkel remains popular with the public and has strong backing among party leaders, with no obvious successor in sight. She has a record of humbling and outlasting enemies, including in her own party. Lindner may be the latest victim. Since he walked out of coalition talks in acrimony, support for the Free Democrats has fallen to as little as 8 percent, compared with 10.7 percent in the federal election, while his own approval ratings nose-dived. It’s a warning to other would-be challengers as his gamble looks to have failed.

Far Right Entrenched

Alternative for Germany, an anti-euro party that began to resonate with voters after campaigning against Merkel’s refugee policy, will be the biggest opposition group if the Social Democrats stay in government. Known as AfD, the new faction is already clashing with mainstream parties about parliamentary posts and procedure after Alexander Gauland, its co-chairman, said “we will hunt” the establishment. Voter support seems immune to party splits and gaffes -- the AfD looks like it’s here to stay.

Economy on Track

Europe’s biggest economy is booming, regardless of politics. Growth accelerated in 2017 to the fastest pace in six years, unemployment is at the lowest since East and West Germany reunited in 1990 and the budget surplus rose to 1.2 percent of gross domestic product last year, the biggest since reunification. All of it helps Merkel by opening up fiscal leeway to accommodate SPD calls for spending on infrastructure and social programs.

Don’t Underestimate Her

Merkel, 63, dodged a bullet on Sunday when the Social Democrats voted to pursue talks on governing with her Christian Democratic Union-led bloc. While it isn’t the final step, just getting there underscores her perseverance and determination. If she gets a coalition deal with the SPD, her stamina, command of policy details and “step by step” mantra -- ridiculed as a lack of vision by critics -- will have carried the day again. She remains the head of Europe’s biggest economy, the most experienced leader of the G-7 nations, and a formidable negotiator. Whether her domestic opponents get the better of her now, as they must surely do one day, it would be a foolish adversary who wrote her off just yet.

©2018 Bloomberg L.P.