German Chancellor Angela Merkel Likely to Win Third Term

Germany’s chancellor, Angela Merkel, is expected to secure her third successive election victory  this weekend, but could struggle to preserve her centre-right majority and avert a potentially divisive coalition with her arch-rivals, the centre-left Social Democrats (SPD).

Recent polls suggest neither of Germany’s two main parties – the Christian Democratic Union (CDU) and the SPD  – will secure enough votes with their traditional coalition partners to cross the 46% hurdle needed to form a government, making a grand coalition between the two the most likely outcome.

Sunday’s vote is being closely followed across Europe, with other members of the eurozone hoping that a further Merkel victory will be followed by a softening of the austerity-first approach that Germany has pursued since the region’s sovereign debt crisis first developed nearly four years ago.

“Germany remains committed to eurozone membership, but public opinion and institutional constraints … limit the scope for any German government to drastically alter course towards more generous support policies,” according to a note by Citi Research analysts.

The prospect of major shifts in the country’s euro policy appear to be remote, even if Merkel is forced into a ‘grand coalition’ with the SPD, whose candidate Peer Steinbrueck has criticised the chancellor for choking off growth in eurozone members such as Greece and Spain by insisting on spending cuts and painful reforms.

Merkel is the favoured candidate among German executives, but some believe a grand coalition threatens to harm certain core business interests. As the most pro-business political candidate they see the chancellor as merely paying lip service to more leftwing concerns that have become key election battlegrounds. These include greater regulation for the financial sector and controlling rising prices for Germany’s army of renters, both issues on which the chancellor has adopted a tough stance, at times even borrowing ideas from the SDP.

The current government has been a public supporter of the European Commission’s (EC) controversial plans to introduce a financial transaction tax (FTT), which has been widely criticised by banks and financial institutions (FIs) both in Germany and across Europe. Yet privately, many bankers believe Ms Merkel’s support for such a tax will wane after the general election if the current coalition continues. If a grand coalition is formed, the opposite could be true.

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