When Chancellor Angela Merkel steps down after 16 years in power, Germany’s status in Europe and the world will be on the line. She put her stamp on global politics defending moderation and liberal values, and as the indispensable leader of an often-fractious European Union. While Olaf Scholz of the center-left Social Democrats is in pole position to succeed her, the power vacuum Merkel is leaving behind and the decline of big-tent centrist parties in Europe mean his path to the chancellery lies in horse-trading to form a messy, three-party coalition government. That process could last for months. Merkel will remain at the helm until the Bundestag votes for a new chancellor.

1. What makes the outcome still hard to forecast?

The fragmented vote in the September election, with the SPD winning the most seats and the conservative bloc dropping to second, is forcing disparate parties together. Scholz, who has served as Merkel’s vice chancellor and finance minister since 2018, is negotiating with the environmentalist Greens and the pro-business Free Democrats, or FDP, to achieve a majority. Since the last election in 2017 -- when it took Merkel about six months to form a coalition -- the SPD, Greens and FDP have gained ground while the conservative bloc is in disarray after slumping to its worst-ever result, leaving it likely to be excluded from power for the first time since 2005. Should Scholz’s discussions falter, Christian Democratic leader Armin Laschet has said conservatives are still open for talks on leading their own coalition with the Greens and FDP, even as he has signaled he’s prepared to step aside as head of his party. 

2. What’s the big issue? 

Key to the puzzle is the division between parties that either want to restore Germany’s traditional budget prudence -- relaxed during the pandemic to unleash waves of aid -- or expand borrowing to help finance the transition to a more climate-friendly and technologically advanced economy. Scholz’s SPD has signaled a continuation of generous spending after the pandemic, though both he and Merkel’s bloc say a constitutional limit on adding too much debt should be eventually reinstated. The 63-year-old Scholz, a former Hamburg mayor, has a similar low-key pragmatism to Merkel, who remains by far Germany’s most popular politician. The SPD joined with Merkel in a “grand coalition” for 12 of her 16 years in power, but the two sides have all but ruled out a repeat of that this time. 

3. Why does this matter outside Germany? 

Germany is Europe’s biggest economy and has plenty of financial muscle, but it’s Merkel’s expertise in international diplomacy that might be missed the most. 

• Steering the EU: French President Emmanuel Macron is seeking to fill the vacuum that Merkel is leaving behind, and her successor will need to ensure the Franco-German alliance continues to function smoothly. They will also need to confront disputes over democratic standards in Poland and Hungary.

• Managing relations with Russia and China: Germany has kept diplomatic channels open to Moscow and Beijing when allies such as the U.S. and U.K. have been more confrontational. The new chancellor will need to help the EU forge a strategy to check the expansion of Chinese interests, insist on fair competition and deal with Russia’s antagonism.

• Strengthening NATO: Macron said the military alliance was succumbing to “brain death” in 2019, and Germany has a pivotal role in giving it direction and making sure it’s funded. Merkel’s bloc is committed to the alliance and the goal to spend 2% of output on defense. The Greens seek an overhaul, saying NATO lacks strategic perspective, while both the SPD and the Greens reject the spending target. The FDP wants to fulfill Germany’s spending pledge.

4. How important is climate change?

With the EU seeking to build momentum behind its Green Deal -- a sweeping economic transformation of the 27-nation bloc -- the elements are there for a shift in Germany’s energy infrastructure and the industrial model that it powers. Climate policy -- touching on the country’s planned exit from coal and nuclear power, its drive for cleaner vehicles and more renewables -- could lead to tension between the Greens and any coalition partners. 

5. How key is immigration?

Merkel’s decision not to close the border to hundreds of thousands of refugees in 2015 and 2016 led to her bloc slumping in the 2017 election. The anti-immigration AfD garnered 12.6% of the vote back then, making it the first far-right party since 1953 to win seats in the lower house, or Bundestag. Since then, the pandemic has pushed immigration down the agenda, and the AfD lost ground in the September vote.  

6. What are the chances of Scholz succeeding?

While the SPD and the Greens are traditional allies who aim to open Germany’s coffers to invest in climate initiatives and infrastructure, finding common ground with the FDP will be a challenge. The free-market liberals campaigned on cutting taxes, reining in debt and reducing bureaucracy. FDP Chairman Christian Lindner -- who was responsible for the collapse of coalition talks with the Greens and the conservatives in 2017 --  has repeated his vow that the party wouldn’t tolerate a leftist shift and would draw a line on raising taxes and loosening Germany’s constitutional debt restrictions. Scholz has expressed confidence that the parties can bridge their differences and has set Christmas as a deadline to get a coalition agreement signed. 

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