What do Germany's national election results mean for economic policies in the €uro zone ?

As predicted in my post of September 8, “Germany’s current chancellor Merkel will [most likely] also be the new one”. Voters gave Merkel and her Christian Democratic party CDU close to an absolute majority of votes (41.5%) while her current coalition partner, the market-fundamentalist liberal party FDP, was heavily punished for going against Merkel’s wishes on several important issues. They lost 10 percentage points and ended up with only 4.8% of the votes, just below the 5% minimum needed to enter the Bundestag.

Analyzing the election results by gender and age, my predictions of September 8 also came true: women over 50 largely voted for Ms. Merkel, while younger women preferred the Greens and men preferred Steinbrueck and his social democratic party SPD (see Spiegel Online: „Bundestagswahl 2013: So wählten die Deutschen“).

Results for the opposition parties
While Steinbrück’s social democratic party SPD was able to gain 2 percentage points compared with the results of the last national election in 2009, his party garnered only 26% of the votes this time. All other opposition parties lost votes: only 8.6% chose the Greens and the Linke, respectively. The Pirates didn’t even make it into the Bundestag, nor did the €uro-critical AfD (Alternative fuer Germany).

There are four special developments that may positively impact economic policy making in the €uro zone (the small ray of light at the end of tunnel):

First, chancellor Merkel lost her current coalition partner, the free marketeer FDP. As noted above, with only 4.8% of the votes they were unable to surpass the 5% hurdle and dropped out of the German Bundestag. The significance of this event for economic policy making in the €uro zone lies in the fact that the FDP has always been the party that insisted on strict conditionality for EU aid and prevented a moderation of the severe austerity course in Greece and other Southern European €uro members. Now that the FDP is gone, a less rigid adjustment process combined with the financing of desperately needed employment-creating investments and economic growth might be possible.

Second, the new, €uro-critical party AfD (alternative for Germany) did not make it into the German Bundestag. Had they entered, they might have stopped any financial help to €uro members and would have insisted on Germany’s exit out of the €uro zone and a return to the Deutsche Mark, with disastrous consequences for the €uro and the economies of the entire European continent, if not the planet.

Third, the economically very progressive Linke has become the third-largest party in the Bundestag, after the CDU/CSU and the SPD, and in front of the Greens! This development could very well be the most significant event for economic policy making in Germany and the €uro zone. Not only does the Linke promote higher German wages and pensions, as well as a reinstatement of former social security benefits and employee protections, thus supporting aggregate demand in Germany.and a reduction of economic imbalances in the €uro zone. The Linke also calls for an immediate stop of austerity policies in the €uro zone and the implementation of a massive investment program in Southern Europe to promote employment and growth. Furthermore, if I interpret their public statements correctly, the Linke calls for a write-off of sovereign debt related to the bail-out of banks and a clean-up of the entire European banking sector. Exactly the kind of policies that I and other progressive economists across the planet have been advocating.

Fourth, the opposition block of SPD (25,7% of the votes), the Linke (8.6%) and the Greens (8.4%) together garnered 42.7% of the votes, 1.2% more than chancellor Merkel’s conservative block’s 41.5%. Thus, the progressive block actually has the majority of seats in the German Bundestag and the power to form a government, including the nomination of a chancellor of their choice ! However, for reasons no rational person understands, the leaders of both SPD and Greens refuse to even speak with the Linke to explore the formation of a three-party coalition, the famous R2G (red-red-green) coalition, even though it is the only power option to replace the Merkel government and implement the desperately needed progressive, demand-side economic policies in Germany and the €uro zone. Conservative alpha males of the SPD and Greens even reject the formation of a two-party (SPD+Greens) coalition government ‘tolerated’ by the Linke ! As I noted in my post on “The Progressive Option for Germany and the Euro zone”, that kind of behavior is "undemocratic and childish. Time for a woman to tell those alpha males to go to their room and stay there until they are reasonable.”

Meanwhile, since the views of the alpha male leaders of the SPD and Greens do not necessarily represent the majority view of the parties’ membership base, reasonable women and men can discuss and design a workable coalition to replace the economically destructive Merkel government. And that’s where it gets interesting. As I noted in my post of September 15, “Analysis of Bavaria’s state election results“: "At that point the left [progressive] wings of the SPD and the Greens would push their party leaders to begin discussions with the Linke to form a progressive coalition instead of going into opposition of a third Merkel government.” 

Let’s hope that this will happen. This coming Friday, the SPD will hold a party convention with the task to decide on the future course of the party, i.e. either a grand coalition with Merkel, or a progressive R2G coalition or no coalition at all. The Greens are planning a party convention in mid-October. Let’s hope that the convention delegates of SPD and Greens will recognize that:

economic policymaking in the €uro zone is not a question of left or right, 

it’s a question of right or wrong !

As all three parties on the left agree that Merkel's economic course in the €uro zone is deadly wrong and urgently needs to be changed, perhaps the irrational fear of the big, bad Linke can be overcome.