Smaller parties squeezed out by Merkel’s win

 
Tim Wallace
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ANGELA Merkel’s coalition allies the Free Democrats (FPD) are set to be wiped out after the German public yesterday gave them less than five per cent of the vote.

Under Germany’s system of proportional representation a party needs at least five per cent to gain any seats in parliament.

The new eurosceptic party the Alternative for Germany, the AFD, is also thought to have come in just short of the five per cent mark, meaning it too will have no seats.

Analysts expect the fall of the FDP to mean any new coalition will be less economically liberal and could move away from the reforms which have kept the economy competitive.

“The FDP usually stands for some pro-growth supply-side reforms and opposes tax hikes,” said Berenberg Bank’s Holger Schmieding.

“In the last four years, the role of the FDP was to restrain the pace of the gradual shift towards a centre-left agenda of more minimum wages and somewhat higher taxes. Without the FDP as a restraining force in government, this gradual shift could become a little less gradual.”

The shift could be particularly accelerated depending on the deal struck with other parties.

The Social Democrats are the lead candidates for a coalition government, as they came second in the election. And the Greens could also be an option – they received around eight per cent of the vote, more than enough to cement Merkel’s position.

Although the coalition’s exact makeup and which parties take which ministerial posts is as yet unclear, analysts expect Merkel’s dominance to act as a sign of stability to markets.

“The German election results are likely positive for German equities as we are headed for a continuation of Merkel’s policies,” said Societe Generale’s Sebastien Galy.

GERMANY’S ELECTION IN FOCUS

German elections almost always produce coalition governments, with no party gaining enough seats to govern alone. Though it is clear that chancellor Angela Merkel’s CDU have come out on top, several major political parties are vying to be included in the eventual government.


SOCIAL DEMOCRATIC PARTY (SPD)The SPD governed in a grand coalition with Merkel until 2009, and is expected to be the second largest party. The SPD wants to raise the top rate of income tax from 42 per cent to 49 per cent, in concert with new wealth taxes. Though the party has attacked austerity in Europe, Germany’s stance in the EU looks unlikely to change.

CHRISTIAN DEMOCRATIC UNION (CDU)
Chancellor Angela Merkel’s party, which currently governs with the FDP. She is set for a third term in power, and is thought nearly to have gained an outright majority. The party is on the centre-right, in favour of Eurozone debt rules, and opposed to tax increases.

THE LEFT
The Left, which was founded in 2007, merging two socialist parties and a left-wing faction of the social democrats, wants an EU-wide levy on banks and is opposed to austerity measures. The party is extremely unlikely to be included in any coalition.

GERMANY GREEN PARTY
The Green party was the chosen coalition partner under the last social democrat chancellor, Gerard Schroder, and held government positions from 1998 to 2005. However, the SPD and Greens have not since garnered enough support to form a government. The Greens support Eurobonds and have been critical of austerity policies.

ALTERNATIVE FOR GERMANY (AFD)
The AFD is a new party that has not contested a federal election before, and has run on a eurosceptic and broadly conservative platform. Though the party is not estimated to have gained the five per cent needed to return seats in the Bundestag, it now has a chance in the European elections.

FREE DEMOCRATIC PARTY (FDP)
The FDP, a liberal party on the centre-right, has ruled in coalition with the CDU since 2009, but has fallen from grace since. The party has run on an anti-inflation line, wanting Bundesbank vetoes over more ECB decisions. But it is set to miss the five per cent needed to get back into parliament.