Merkel retains power in Germany as safe pair of hands

Germans use the same word for election and choice – wahl. But the interest around Europe in Germany's federal election yesterday was in inverse proportion to the choice on offer – or the change likely for the continent.

Some 62 million German voters had a choice of 34 parties – from the “Bible-believing Christians” to the feminist “Frauen Partei” – but they settled for just half a dozen groupings and one familiar face: Angela Merkel.

After eight crisis-filled years, and some disastrous election results, the ruling Christian Democrats (CDU) ended last evening stronger, with the best result in more than two decades. Though tricky coalition negotiations lie ahead, Angela Merkel is stronger than ever in her 13-year reign as CDU leader.

Her party's winning formula dusted off an old election slogan campaign from the 1950s – keine experimente (no experiments) – to sell Merkel to voters as a safe pair of hands, on both domestic and European issues.

Domestic woes
But make no mistake: the election of Germany's 18th Bundestag was won on domestic concerns, particularly the rights and wrongs of fiscal redistribution. The euro crisis barely got a look-in.

Given the growing calls for greater German leadership in Europe, the lack of debate on the EU and the future of its currency is disappointing – but not that surprising.

For all their attacks of Merkel’s crisis strategy, the opposition Social Democrats (SPD) have never fundamentally challenged her analysis of the euro crisis as a sovereign debt crisis.

SPD challenger Peer Steinbrück campaigned for a “Marshall Plan” for investment in crisis-hit economies. But, for four years in opposition, his party backed Merkel’s crisis strategy in the Bundestag that made German financial solidarity with crisis countries conditional on reforms and painful cuts to restore competitiveness.

Banking union
Looking ahead, almost all parties in the new Bundestag support the biggest item on the EU's autumn agenda: a banking union as a crucial backstop against future crises. But Berlin has moved its foot from the accelerator to the brake in recent months, concerned that European Commission bank wind-up proposals are wide open to legal challenge.

After coalition talks, likely to take up to a month, further dithering is likely. But there are signals Berlin would consider a compromise whereby the commission would oversee the banking resolution mechanism but with European Stability Mechanism oversight and thus a German national veto.

The ESM, Merkel’s advisers believe, must also play a role in any precautionary funding to assist Ireland’s bailout exit. In the coming years, Merkel is keen to see the ESM, headed by German Klaus Regling, built up as an European Monetary Fund – away from commission influence. Only then will Berlin consider the idea of pooled sovereign debt, so-called eurobonds or ESM-funded bank recapitalisations.

Regardless of her new government, Merkel will stick to her trusted European strategy that borrows from philosopher Karl Popper’s theory of “piecemeal social engineering”, favouring small-scale, incremental change continuously amended in the light of experience. On Europe: expect no big bangs from Berlin.