Triumphant Merkel to start search for coalition ally

The day after her stunning election triumph, German Chancellor Angela Merkel was on Monday set to start the process of haggling with potential partners over how to rule Europe’s biggest economy. After a campaign that banked on Merkel’s image as a calm, sensible and reassuring euro zone crisis manager, she led her conservative Christian Democratic Union (CDU) close to its first absolute majority in half a century. “The Merkel Republic,” ran the headline for a commentary on news site Spiegel Online, which declared that after the landslide outcome which won the chancellor a third term, “Germany has finally become Angela Merkel-Land”. True to her style, Merkel pledged that “we will use the result responsibly and carefully,” but stressed that she intends to serve out her full term till 2017, as jubilant supporters yelled “Angie, Angie, Angie”. Congratulations poured in from across Europe, while the euro firmed in Asian trade, with investors cheering the “continuity” Merkel provided. The CDU and its Bavarian allies demolished their centre-left opponents with what a beaming Merkel called a “super-result” of 41.5 per cent, its best in 23 years. Video: Merkel clinches third term, might have absolute majority However, the shock demise of Merkel’s junior allies the pro-business Free Democrats (FDP) after more than half a century in parliament meant she now has to look for a new coalition partner. The most likely candidate was the centre-left Social Democrats (SPD), who scored just under 26 per cent. Its candidate Peer Steinbrueck said late on Sunday that “the ball is in Merkel’s court. She has to put together a majority”. An outside option would be a Merkel coalition with the ecologist and left-leaning Greens, who won 8.4 per cent, although both parties in the campaign nixed such an uneasy alliance given their yawning policy differences. Cautious and guarded as ever, Merkel said late on Sunday she would wait for the final numbers and than proceed “step-by-step”. “We won’t start a va-banque game,” she said, using a gambling reference to a highly risky endeavour. Merkel herself said that – after other parties were bruised in previous coalitions with her – “perhaps we’ll no longer find anyone who wants to get together with us”. Either way, observers expected days or even weeks of tough negotiations over policies and ministry posts between potential partners. Whatever shape the new government will take, the impact on the euro zone and the rest of the world was judged to be marginal by commentators. IG Markets’ Kelly Teoh said what was key was the continuity that Merkel’s third term would bring. “The election has gripped international interest as the euro zone is coming out of a recession, and continuity is what the markets favour,” the market strategist said in a note. Italian Prime Minister Enrico Letta hailed the “good result for the European Union”, noting that the eurosceptic party AfD had failed to garner enough support to enter parliament. European Union president Herman Van Rompuy expressed confidence Germany would remain committed to a “prosperous Europe”. French President Francois Hollande congratulated Merkel in a phone call in which both agreed “to continue their close co-operation to meet the challenges of the European project”. Britain’s David Cameron said in a tweet that he was “looking forward to continuing to work closely” with Merkel. Looking at a left-right grand coalition scenario, Berenberg Bank analyst Holger Schmieding said broadly “the SPD endorses Merkel’s euro policies”, including opposition to eurobonds. Because the SPD campaigned on social justice issues and help for the working poor, it would be expected to want to soften some of its own tough labour reforms from a decade ago and demand a national minimum wage. The parties would probably agree on a minor stimulus through infrastructure spending, a modest hike in top marginal income taxes and a gradual reduction in subsidies for solar and wind energy, said the Berenberg Bank note. Teaming up with the SPD, as Merkel did 2005-09, would make it easier for her to push policy through the upper house representing Germany’s 16 states, where the opposition “red-green” alliance has a majority. The big losers of the evening, Merkel’s junior partners the FDP, crashed out for the first time since 1949, having plunged some 10 points since the last election amid ugly party infighting. Vice Chancellor Philipp Roesler called it “the most bitter and sad hour” of his party, which also includes outgoing foreign minister Guido Westerwelle, and which was headed for deep soul-searching and a likely decapitation of its leadership. Ironically, the conservatives gained fewer votes than the combined left – the SPD, Greens and far-left Linke, which won 8.6 per cent. However the Linke, successor to East German communists, has consistently been rejected by the SPD and Greens as a coalition partner.