Merkel’s search for partner in government begins

As her political rivals scattered like skittles, Angela Merkel bathed in the glow of her election triumph. The first euro zone leader re-elected since the outbreak of the euro crisis – and re-elected in style – refused, ahead of coalition talks, to draw any red lines.

Then she proceeded to do just that, promising “no change” on her euro crisis strategy. A new lick of paint with a third-term coalition, perhaps, but no structural changes likely in Berlin. And so the most likely outcome of negotiations is another grand coalition with the Social Democratic Party (SPD).

From the opposition benches the SPD has backed Merkel’s reading of the euro crisis as a sovereign debt crisis and supported her prescription for recovery: tighter fiscal rules to wean EU states off debt- financed budgets.

The SPD may try for a more balanced approach to saving and stimulus measures, but its meagre three-point rise in support on Sunday leaves it with little mandate to push through its election promise of a large-scale Marshall plan for crisis countries.

Instead, the SPD is more likely to press Merkel's Christian Democrats (CDU) on items already in play. Domestically: a minimum wage compromise and a brake on rent increases. At EU level: a euro zone financial transaction tax and banking union to backstop EU financial markets. The SPD insists the latter, in particular the cost of winding up future failing banks, must be financed by banks and not taxpayers.

Finance post
Key in Berlin's future strategy is who secures the finance ministry. SPD challenger Peer Steinbrück, Merkel's first finance minister, says he is unwilling to serve under her again and his party has few other candidates for the heavyweight portfolio. Meanwhile, Merkel is unwilling to sacrifice her trusted finance minister, Wolfgang Schäuble – nor does the 71-year-old appear willing to be retired.

A crucial decision for SPD leaders is whether entering government will help or hinder resolution of an identity crisis gripping the party. As happened in 2005, entering another grand coalition would most likely freeze rather than resolve the question of whether the 150-year-old organisation is now centre left or left wing .

A similar coalition-or-opposition dilemma faces Merkel’s other potential coalition partner, the Greens. The chancellor’s post-Fukushima U-turn, promising a nuclear power exit in a decade, knocked out a Green founding pillar. They struggled – and failed – to replace it with a social justice plank.

Given that – and the state of Merkel's previous two coalition partners – Green rank-and-file may insist their identity crisis is best resolved in opposition rather than in office.

Eurosceptic party
Germany's political mainstream was scrambling yesterday to respond to the success of Eurosceptic Alternative for Germany (AfD).

Post-election analysis indicates it is still a protest party, pulling votes from the left and right fringes. But, even outside the Bundestag, a third Greek bailout and next year’s European elections are perfect platforms to propagate its opposition to bailouts and demand for a euro zone exit clause. The chancellor knows that her campaign strategy – to ignore the AfD and hope it withers and dies – very nearly went wrong on Sunday and is no long-term solution.

Finally, the only Bundestag party without any coalition ambitions, for now at least, is the Left Party. It put in a steady campaign to finish third in the Bundestag – no small achievement for a party usually wracked with internal strife.

The party could yet come into play if the SPD or Greens decide to try to have their cake and eat it: join Merkel in office with a view to breaking up the marriage for a three-way centre-left alliance before the next election.

Merkel may be at the zenith of her power, but she will need to remain alert to manage what none of her CDU predecessors have achieved: to make a timely exit from office before the office ejects her.