Political rebalancing in Europe

Crucial and complex elections are taking place in Europe this year, though their outcome may not be as troublesome as many fear.

Over recent months, there has been a steady stream of articles in the British press about David McAllister, a German politician with the most unlikely of names, thanks to his German and Scottish heritage (he holds both a British and a German passport).

The 41-year-old politician is the prime minister of the German state of Lower Saxony, and is seen as one of the rising stars of the ruling Christian Democratic Union (CDU). He is even touted as a possible successor to Chancellor Angela Merkel herself in the not too distant future.

SITUATION IN GERMANY

There’s little doubt about McAllister’s popularity, and in regional elections in Lower Saxony later this month, McAllister and his party are expected to emerge with the largest share of the vote.

Still, there is a high probability that he will not return as the States’ prime minister, thanks to the unpopularity of coalition partner, the liberal Free Democratic Party (FDP), whose support has tanked nationally over the past few years and shows little chances of recovering.

It is expected to get less than the crucial 5 per cent share of the vote it must gain to be allocated seats. Instead, an alliance of the Socialist Democrats (SDP) and the Green Party is likely to take its place.

The election will have some national significance: should the Red-Green coalition triumph, it will give that grouping a majority in the Federal council or Bundesrat, through which a considerable amount of legislation must pass.

While this change is unlikely to impact on legislation relating to the handling of the Euro Zone crisis, it could help push certain Red-Green issues such as tax evasion, the minimum wage, and even energy policy up the political agenda, says Gero Neugebauer, professor of politics at Berlin’s Free University.

However, the SDP’s leadership has been quick to impute wider national significance, too. The Lower Saxony elections are the last to take place before the federal elections later this year. “They want to give it the spin that it’s the opening signal of the outcome in September,” says Carsten Nickel, a German political analyst at the Eurasia Group. “McAllister and the CDU’s problem is their coalition partner, and that is pretty much the story that could repeat itself in the Bundestag elections.”

The FDP has long had an important, kingmaker-esque role in German politics — forming a key part of ruling coalitions with both the Social Democrats and the CDU over the years.

However, a series of political blunders, and its stubborn neo-liberal position on issues such as taxation, has failed to chime with public sentiment in a country where government leadership, and fiscal consolidation have been crucial to economic stability.

In recent years the party has repeatedly done poorly in regional elections, and now there are even questions about whether it will get the necessary 5 per cent even in the federal election.

Merkel’s increasing emphasis on issues such as the minimum wage and social policy, and a social democratic agenda could increase the rift between the parties, says Neugebauer.

Still, there’s good reason to believe that the federal elections are unlikely to change the German line on issues relating to the Euro Zone, such as Germany’s push for a banking union, and its wariness of debt mutualisation without further structural reform by member states.

For one thing, Merkel’s popularity remains firmly high, while her party is polling at over 40 per cent, its highest rating in years.

This could mean a coalition without the liberals, and potentially even the SDP or the Greens, says Neugebauer. And should the CDU be ousted, a Green-Red coalition would be unlikely to deviate from the current agenda, says Nickel.

“There are a handful of MPs in the FDP and CDU that have been voting against the Euro Zone measures…but the SDP and the Greens have been on board every single time,” he explains.

MONTI’S POSITION

The other election that is sparking some concern is next month’s general election in Italy, with Silvio Berlusconi, who is throwing himself forward as a prime ministerial candidate for the fourth time, threatening to undo many of the crucial reforms brought in by the technocratic government of Mario Monti.

Fortunately, observers see little chance of his return, with the race largely being between a centrist coalition led by Mario Monti, and a left coalition led by Pier Luigi Bersani (he is currently in the lead with personal support of over 35 per cent in the polls).

While Monti — favoured by the markets for the impressive strides he has made — lags behind, it is likely that a Bersani-led coalition could involve Monti in some role, says Raj Badiani of IHS Global Insight.

“While Bersani has been suggesting growth-boosting measures to kickstart the economy, it is a luxury Italy cannot afford,” he says, arguing that Monti would likely be brought in as a market-soothing measure.

“Italians may think they are voting for a change of policy but in the cold light of day and the market leaning heavily on Italy, backing away from reforms won’t be feasible,” he adds, pointing to the country’s public debt level, which has risen to 126 per cent of GDP, and is set to increase further before it begins to fall.

With all eyes on the developments in the US, Europe has receded into the background for the moment, though this reprieve isn’t likely to last long, given the likelihood of a Spanish bailout at some point, and worsening economic, and particularly labour market, conditions across the region.

However, for now, the national elections are unlikely to give the market the white-knuckled ride that they did in 2012.

( >blfeedback@thehindu.co.in )

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