Merkel faces tough talks forging coalition

"TOMORROW, we work" was how Dr Angela Merkel reacted when first told that her countrymen had re-elected her for a third term as Chancellor.

While it is a resounding vote of confidence for her, the ever cautious Dr Merkel is right to remain sombre: much hard bargaining lies ahead in forging a coalition government.

What is more, although Germans opted on Sunday for stability, what they actually got was a political map which has changed in subtle yet fundamental ways, making decisive action harder to achieve in her next four years.

To be sure, it was a huge victory for her centre-right Christian Democratic Union (CDU). It gained 41.5 per cent of the votes, its best electoral result since Germany reunified in 1990. Its main rival, the Social Democratic Party (SPD), won only 25.7 per cent, a big setback for the centre-left movement which used to enjoy broadly similar support to the CDU. And the ecological Greens, natural allies of the SPD on the left, also did worse than predicted, polling only 8.4 per cent.

According to the final ballot count, the CDU is projected to have 311 lawmakers, just shy of a majority in Germany's 630- strong Bundestag, the lower parliamentary chamber. So Dr Merkel needs a coalition partner.

But the CDU's natural allies, the pro-business Free Democrats, failed to get a place in Parliament after winning just 4.8 per cent of the vote, below the critical 5 per cent threshold.

Dr Merkel's party will be forced to start negotiations with the SPD, the next largest party with an expected 192 seats. "The ball is in Merkel's court," said its leader Peer Steinbrueck, a former finance minister who has said he will not serve under the Chancellor again.

Many ordinary Germans welcome the prospect of a CDU-SPD government. It will certainly enjoy a crushing majority in both the Bundestag and the Bundesrat, the Upper House where Dr Merkel's party is currently in a minority.

And the entry of the SPD into government, so the reasoning goes, will also tone down her demands for austerity in Europe, by ushering in a policy of greater government spending.

But this received wisdom is almost certainly wrong. And the prospect of what lies ahead likely accounted for the tiny lift the euro got from news of Dr Merkel's victory despite the flurry of congratulations from fellow European leaders, such as French President Francois Hollande, British Prime Minister David Cameron and European Council president Herman Van Rompuy.

The business of coming to a coalition agreement will likely take weeks and promises to be gruelling. In 2005, coalition talks lasted over two months.

This time, the SPD wants higher taxes, a national minimum wage and more welfare spending; Chancellor Merkel, however, is facing demands from her backbenchers to cut tax rates.

Furthermore, Germany's coalition deals are not just informal agreements, they end up as binding legislation programmes. And yet, crucially, both the CDU and SPD face serious challenges to their voter base.

The Left Party, a loose coalition comprising communists and disenchanted socialists, won 8.6 per cent of the vote and will now be the third-biggest parliamentary block, mainly at the expense of the SPD whom it accuses of betraying the working class.

Meanwhile, the Alternative for Germany, a single-issue party which advocates Germany's withdrawal from the euro zone and no further German money to bail out neighbouring nations, came from nowhere to win almost 5 per cent of the vote, almost entirely at the expense of Dr Merkel's natural constituency.

While the party failed to enter Parliament, it could become a permanent feature of the political landscape. Tellingly, its leader, Mr Bernd Lucke, remarked that it had "taught the other parties to be scared".

The result is that the SPD cannot afford to make policy concessions to the CDU for fear of losing more voters to the Left, while the CDU cannot afford to be generous on euro bailouts, for fear of haemorrhaging supporters to the Alternative.

German political dithering, rather than decisive action, looms in Chancellor Merkel's next term.

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