22 July 2013

Deutsche Bank: Euroscepticism to prevail in CDU/CSU and FDP after the election?

Depending on the election outcome, eurosceptic MPs in the FDP and the CDU/CSU could achieve greater leverage in upcoming decisions. The eurosceptic wing within the CDU/CSU will most likely not be weakened by the election. Things look slightly different for the FDP.

While the eurosceptic party Alternative für Deutschland (AfD) is faring far below the five per cent parliamentary entry hurdle in current polls, eurosceptic tendencies in the governing coalition merit a closer look. The share of "no" votes and abstentions in decisions on bailout policy increased until the end of 2012. Since then, it has remained constant at around 8 per cent of the governing coalition. In some parliamentary decisions this constellation has put the coalition’s absolute majority at risk, making Chancellor Merkel dependent on support of the SPD and the Greens.

Will the elections in September strengthen or weaken the eurosceptic factions in the CDU/CSU and the FDP? The answer to this question requires an understanding of Germany’s rather complex electoral system.

German voters have two votes: The first is a direct vote for their candidate in one of the 299 constituencies. Those MPs that win their constituency definitely enter parliament. The second enables the electorate to vote for a party-based election list in their federal state. It determines the party’s share in the Bundestag – provided the party can surmount the five percent threshold of all second votes at national level.

The CDU/CSU has a profound base of MPs that enter the Bundestag by direct mandate. In 2009, 218 out of their 239 MPs were directly elected in their respective constituencies. In contrast, the FDP was not able to win any direct mandate – MPs are recruited from the party’s state election list according to their share in second votes.

These particularities have implications for the future representation of eurosceptics in the CDU/CSU and FDP Bundestag factions.The eurosceptic minority within the CDU/CSU, consisting of seven eurosceptic MPs that have rejected every decision on the euro area, should not be weakened. In some votes, the number of deviators went up to 16. All of them won a direct mandate in the 2009 election - 14 of them will run again in the federal elections on September 22 and can be confident of being returned to office.

Things look different for the FDP. The Liberals have not been able to win any constituency since 1990. In the absence of a direct mandate, all successful candidates come from election lists and this makes the ranking of the deviators in the respective state lists particularly relevant. Four out of the ten eurosceptics will not campaign for another term. However, while the eurosceptic faction within the FDP is thus likely to be weakened, the remaining candidates secured a comfortable position in their state election lists.

Whether these eurosceptic wings will, however, get greater leverage over decisions in the course of euro crisis management depends on the coalition constellations in the next Bundestag.

In case of a grand coalition between the CDU/CSU and the SPD, euro-related decisions should build on a broad parliamentary majority. As critical voices on country bailouts from the conservative side and/or on banking issues from the SPD will apply to different topics, the comfortable majority of a grand coalition would not be put at risk.

If the currently governing coalition were to be continued, the focus of attention would certainly centre on the eurosceptic MPs. Current polls suggest that a renewal of the conservative-liberal coalition would have an even weaker lead ahead of the opposition than after the 2009 elections. In this case, 15 to 20 deviators from the governing coalition would indeed form a critical mass – unless the government could again, as it did in the outgoing parliament, enlist the support of the opposition parties.

If the FDP remained below the 5 per cent hurdle and failed to remain in the Bundestag there is a – very low – probability that the CDU/CSU could win a very thin absolute majority. In this very particular case, the eurosceptic faction could indeed tip the scales and force the government to pursue a more cautious policy course in terms of institutional upgrade and fiscal solidarity in the euro area.

Even under the two last scenarios, German support of euro rescue mechanisms should not be endangered in principle. Already in past bailout votes, Chancellor Merkel got legal acts approved with the support of the SPD. That support, however, would not be a free lunch. After having lost the elections, the Social Democrats would most probably be less prepared to compromise and instead insist on their positions, i.e. become less tolerant of package deals whenever they know that their votes are needed. For some issues such as Banking Union this might even lead to a more constructive answer by the German government than perceived so far.

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