MNI ANALYSIS: Merkel German Win Seems Clear, Coalition The Key

--Headline Result Looks A Nailed On Merkel Win; But Who Will Partner?

--Strong AfD Showing Could See It As The Main Opposition Party

--SPD Deal Could Benefit European Integration, FDP A Boost For UK Hopes

By Tara Oakes

     BRUSSELS (MNI) - No-one is going to trouble Angela Merkel for top spot in

this weekend's German federal elections. She knows that; the financial markets

know that; Germany knows that. But the make-up of the future German government

is far from clear.

     For many in Brussels, there are sighs of relief at Angela Merkel's

inevitable coronation. But fears are growing in Berlaymont about the AfD's

increasingly strong showing -- possibly to be higher on the day than polls

suggest -- at a time when some had assumed the lid had been put back on populism

in the bloc.

     If another grand coalition is arranged between Merkel's CDU-CSU and the

SPD, the AfD could well be heading the official opposition, entitling them to

have first response in debates. With the added airtime and visibility, there are

rumblings of fear in the EU that they will only grow in strength.

     Merkel will be back at the head of the EU's largest economy, winning a

fourth term, imparting a steady sense of stability in an increasingly volatile

geopolitical world.

     Forschungsgruppe Wahlen's poll published Thursday backed up Merkel's

justifiable confidence, placing her centre-right CDU/CSU party far ahead of

their closest challengers.

     Their "projection" figures, which also take into account "longer-term

convictions and tactical considerations" of voters, have the CDU/CSU at 36%;

centre-left SPD at 21.5%; far-right AfD at 11%; liberal FDP at 10%; far-left Die

Linke at 8.5% and the Greens at 8%.

     Despite the likelihood of Merkel's win, German elections are not without

excitement for those who know where to look. Coalition-building is a gruelling

necessity in the Bundestag and has seen some creative juggling in the past.

     Over 300 seats would be needed for a government to form an overall

majority: there are 598 nominal seats in the parliament, but there are always

additional "overhang seats". The current Bundestag, elected in 2013, has 631.

     YouGov, who better predicted the UK's hung parliament than other pollsters

in the recent UK election, published a seat distribution model earlier this

week, estimating 255 seats for the CDU/CSU; 176 for the SPD; 85 for the AfD; 74

for Die Linke; 52 for the FDP and 44 for the Greens.

     This would result in a total 686 seats, according to YouGov's projections.

     MUDDLING THROUGH

     Merkel will be the clear winner on the night, but then her problems will

start as she tries to build a working government.

     Historically, the FDP have been far and away the preferred coalition

partners for the CDU/CSU. However, it seems unlikely they will win enough seats

to stand alone alongside Merkel's party.

     Merkel's current "grand coalition" with the SPD has benefitted her standing

across Europe, allowing her to be portrayed as treading a steady middle path at

the heart of Europe, rather than being buffeted by Eurosceptic tides despite the

rise of the AfD back home.

     Banding together with the FDP would steal that comfort blanket of centrism

from Merkel, and it may be much-missed.

     "We are convinced that a good future for Germany can only be seen in an

integrated Europe, but if we look at the European Union, we see the necessity of

reforms," FDP MEP Michael Theurer told MNI in the run-up to the vote.

     "We need institutional change, reforms, and we also need market-oriented

reforms to get the reform and crisis countries back on a growth path," he added.

     As a price of coalition, the FDP would likely demand the finance ministry,

ousting 75-year-old Wolfgang Schaeuble from the position. Schaeuble become a

figure of focussed Greek anger for his hard line during their debt crisis -- but

an FDP finance minister, likely Christian Lindner, would keep up the harsh

rhetoric.

     "We don't believe that a continuation of muddling through, which is not

leading to the necessary structural reforms in Greece, will help," Theurer told

MNI.

     "We are not willing to continue if the Greek partners are not able to

deliver what they have promised," he said.

     Greece has passed numerous reforms to please international lenders, but

many still need to be implemented on the ground.

     One fan of an FDP-CDU/CSU coalition could be Britain, who would likely find

greater support during Brexit negotiations from the liberals than from current

SPD chancellor candidate Martin Schulz, who has vocally railed against their

decision to leave the bloc.

     "This is probably the best coalition from the British point of view, given

that they themselves are Eurosceptic, do not want closer European integration,"

Dr Waltraud Schelkle from the LSE's European Institute told MNI.

     If the FDP and CDU/CSU alone cannot make up the numbers, they may tap the

Green party for a so-called Jamaica coalition: an ideological headache, but on

that has proved a functioning solution in some of the German Laende (regions).#

     The AfD, the populist right-wing party, is likely to pick up around 10% of

the overall vote, winning around seats in the Bundestag. However, they don't

feature in the coalition building plans of any of the main parties. 

     High up in the European Commission, it is understood that there are sighs

of relief at Merkel's inevitable coronation.

     But fears are growing about the AfD's increasingly strong showing -- likely

higher on the day -- at a time when some had assumed the lid had been put back

on populism in the bloc.

     If another grand coalition is arranged, the AfD could well be heading the

official opposition, entitling them to have first response in debates. With the

added airtime and visibility, influential EU figures are worried that they will

only grow in strength.

     GRAND AMBITIONS

     Merkel would prefer to maintain the status quo of her current grand

coalition, according to Schelkle. Europe, too, might be happier; especially

French President Emmanuel Macron, who is hoping the two big hitters can create a

revitalized core for further Eurozone integration.

     "The grand coalition would mean a relatively Europe-friendly position,"

Schelkle said.

     "For Merkel, that would be the best position: she wants to be between

Schaeuble and the SPD. It would also mean that she can keep Schaeuble. Their

good cop, bad cop strategy has worked out quite well for them," she added.

     SPD MEP Joachim Schuster told MNI he was not keen on another round of being

the junior partners in a grand coalition -- never an idea to be relished by a

party on the campaign trail.

     But if it happened, the SPD would want closer EU integration, he added.

     "It seems that Merkel supports the austerity policy. Schaeuble was the main

actor in this field, but the SPD wants a new politics with more republic

investment, fiscal capacity, the capacity for the Eurozone and more flexibility

concerning the limit of upper debt, for example," Schuster said. The centre-left

party, he added, welcomed many of Macron's previous ideas expressed on closer

monetary union.

     Much, then, will hinge on France and what they want as well as Germany:

power Macron is likely to enjoy when he makes his speech next week. 

     Merkel can use French demands as leverage to justify for her own centrist

EU positioning no matter what the coalition partner; but deals in Germany are

unlikely to have been struck by the time he speaks. The CDU may win, but during

coalition talks the 'losers' will flex their muscles too.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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