Germany’s new coalition will make little change to Merkel’s euro policies

MONTHS after elections were held, Germany’s coalition talks have finally resulted in a deal – a grand coalition between Angela Merkel’s centre-right CDU/CSU and the centre-left SPD. Already, it is clear that Merkel will remain Europe’s most important player. Following an election that saw her party win a landslide victory that left it only few seats short of an absolute majority in the Bundestag, she will enter her third term as Chancellor at the helm of a strong and stable government.

But unlike Germany’s last grand coalition between 2005 and 2009, Merkel will have parliamentary support to secure her programme. And although the SPD, her junior coalition partner, has managed to secure some concessions – including the introduction of a statutory minimum wage of €8.50 – the government will have Merkel written all over it, at least for the first part of its tenure.

It also looks likely that Merkel’s party will keep control of the all-important Finance Ministry under Wolfgang Schäuble. Alongside the Chancellery, this is where the key EU decisions are made at the moment. As such, the basic trajectory of Germany’s Eurozone policy will not change. Germany’s new programme for government carries forward Merkel’s slow and cautious approach to the EU. So what does the agreement say?

Interestingly, in light of David Cameron’s announced crackdown on EU migrants’ benefits, the German coalition vows to “tackle unjustified benefit claims by EU citizens”. This will have been met with cheers in No 10.

On the Eurozone and the wider EU question, as always, the German rhetoric is strongly in favour of further EU integration, with the agreement calling it “the most important task facing Germany”. However, it also rejects all forms of debt pooling. This confirms, once again, that when the Germans talk of more integration, they mean stronger central control over taxation and spending, not fiscal and political union. A recent Open Europe poll showed that 64 per cent of Germans oppose debt mutualisation.

And despite language promoting “growth” and “competitiveness”, ultimately the agreement concludes that austerity and consolidation of national budgets remains the main remedy to exit the crisis, albeit with more emphasis on structural reform.

The coalition has also committed to new “reform contracts”, where struggling euro countries will agree to structural reforms in exchange for further aid. This is an idea floated by Merkel in the lead up to the elections, and is politically feasible for the Germans, as it involves more control over Eurozone spending and reforms for potentially less cash. Unlike debt pooling or yet more ad hoc rescue packages, Merkel might get it past her bailout-fatigued public. However, making these contracts enforceable could set Germany up for a major battle.

Finally, on the much-heralded banking union, there’s little detail, although the agreement does say that the banking sector itself will pay in the event of crisis. But make no mistake, progress will remain very slow.

So the big news out of Berlin yesterday is that Germany is still Germany. And Merkel is still queen of Europe.

Nina Schick is a policy analyst at Open Europe.