German Federal Elections: All set for a German “traffic light” coalition and what would that mean for Europe?

by Jörn Jakob Röber, Director, Financial Services and Digital, and Sophie-Charlotte Walter, Senior Account Manager

Less than two weeks after German federal elections in which the Social Democrats (SPD), the Greens and the Liberals (FDP) increased their vote share compared to 2017, on Wednesday the three parties declared their intention to start formal coalition negotiations for a so-called “traffic light” coalition. The SPD has been in a pole position to lead a future coalition, having narrowly beaten the Christian Democratic Union (CDU).

However, it was initially the two smaller centrist parties, the Greens and the liberal FDP, which kicked off the informal “speed dating” between the different parties to explore the new coalition options. As kingmakers, they were in the comfortable position to choose to form a government with either the SPD or the CDU. Yet, after only a couple of informal bilateral discussions, the alternative option of a so-called “Jamaica” coalition with the CDU seems to have been abandoned. Attacks within the CDU against its party leader Armin Laschet following its historic defeat, who has indicated in the meantime that he might be prepared to step aside, did not help the party’s position in these discussions. Separately, under Angela Merkel the CDU had taken on board many of the policies from the SPD, which successfully campaigned on a ticket of continuity.

Commonalities and differences

The three potential “traffic light” coalition partners still have a difficult path ahead to agree on common policy lines. The Greens and the Liberals – who were both particularly successful amongst younger voters and who represent the more progressive forces in German politics – share liberal core values and are united in their desire to drive digitalisation in Germany and Europe, ensure data protection and privacy and on protecting democratic values against autocratic regimes.

Their positions differ the widest on climate change, taxation social and economic policy, though some common ground could also be found on these issues. The Greens are likely to push for a more ambitious environmental policy, seeking subsidies and stronger regulation to ensure that Germany meets its CO2 reduction targets, while the FDP wants to encourage innovation and economic growth, though with less regulation. Taxation and social policy might also be one of the more contentious issues, with the SPD and the Greens pushing for a more socially just policy, including higher taxation for the well off and a possible wealth tax, though tax increases are strictly opposed by the Liberals.

Renewed German impetus for Europe?

The political agenda of a potential “traffic light” coalition will also be crucial for the direction of travel of European integration over the next decade. Provided that common ground can be found, the coalition government is likely to support the EU Commission’s Fit for 55 climate policy agenda, especially after a summer that has shown the severe consequences climate change can have on national security. In Brussels, where Member States are still in early stages of negotiations of the ambitious climate reforms proposed in July, Germany could provide a strong push for a pioneering climate agenda with the Greens in the new government.  

The economic policy of the EU, which has seen its toolbox significantly expand following the pandemic, would also be impacted with the liberal FDP likely to seek the finance portfolio in a new coalition government. The FDP values fiscal discipline and low tax, which could complicate future European Council discussions on topics like Eurobonds and the softening of the EU’s debt rules. 

Interested in learning more on the impact of the German elections on Europe and your business sector or company? Please get in touch with Sophie Walter and Jörn-Jakob Röber.

Jörn Jakob Röber

Director, Financial Services and Digital