When Chancellor Angela Merkel steps down after 16 years in power, Germany faces a watershed. Budget policy, the cornerstone of its post-war stability, may need a rethink after debt limits were cast aside and hundreds of billions of euros unleashed to offset Covid-19. The pace of its move to a carbon-free economy is also under scrutiny, as is the wider role the country may seek to play on the world stage. A lackluster campaign by Armin Laschet, the conservative candidate for chancellor, has made it uncertain whether Merkel’s bloc will lead the new government or even participate in it.  

1. How has the political landscape changed?

Traditional mainstream parties have declined while the Greens have gained ground. Voters want to know how Germany will achieve drastic cuts in emissions while keeping its role as an economic powerhouse. Since the 2017 election, China has become more influential while the U.S. is seen as a less dependable partner, even with Donald Trump gone and Joe Biden in the White House. Chaos in Afghanistan, sparked by the withdrawal of international forces, has prompted warnings of a repeat of 2015 when Merkel opened borders to refugees fleeing Syria. The far-right Alternative for Germany could benefit.

2. How is the battle shaping up?

The Social Democrats, led by Finance Minister Olaf Scholz, have mounted an unexpected comeback, moving ahead of the Greens into second place and even leapfrogging Laschet’s CDU/CSU in one poll. The center-left party has momentum and the Sept. 26 vote is shaping up to be the most unpredictable in decades. Scholz is far more popular than Laschet, according to polls. A former Hamburg mayor and trained labor lawyer, the 63-year-old has played up his experience as a crisis manager during the pandemic. His low-key pragmatism is similar to Merkel’s, who remains by far Germany’s most popular politician. 

3. What about the alternatives?

Laschet has struggled to convince voters that he can effectively run Europe’s biggest economy. The 60-year-old state premier of North Rhine-Westphalia committed a series of gaffes, including laughing in the midst of flood wreckage in his home region. The Greens announced in April that Annalena Baerbock would be their candidate. They have never led a national government, but were junior coalition partners to the Social Democrats between 1998 and 2005, and have run the state of Baden-Wuerttemberg for a decade. While Baerbock enjoyed an initial bounce in the polls, stumbles have dented support.

4. What are the coalition options?

If Laschet is to secure the chancellery, he will likely need to strike a coalition deal with the Greens and the FDP in a “Jamaica” alliance, so called because the party colors black, green and yellow match the Caribbean island’s flag. However, if the current trend persists and the SPD wins, Scholz could form a red-yellow-green coalition with the FDP and the Greens, known as the “traffic light” option. Another possibility, though unlikely, would be a red-red-green alliance with the far-left Linke replacing the pro-business FDP. The SPD joined with Merkel in a “grand coalition” for 12 of her 16 years in power and the two sides have all but ruled out a repeat of that this time. Forming a government could take many weeks and Merkel will remain at the helm until the Bundestag votes for a new chancellor.

5. What do polls show?

The SPD closed the gap to the CDU/CSU through August, overtaking the Greens in second place and then leapfrogging Merkel’s bloc for the first time in a Forsa poll for RTL/ntv published Aug. 24. That showed the SPD on 23%, the CDU/CSU on 22% and the Greens on 18%, with the FDP on 12%. A Forsa ranking of politicians showed Scholz on 51 points in third place behind Merkel and Bavaria Premier Markus Soeder, with Baerbock in fifth on 33 points. Laschet was in 11th place on 29.

6. Why does this matter outside Germany? 

Germany has financial muscle, but it’s unclear how the next government will use it. Merkel’s balanced-budget regime drove debt levels well below those of other major economies, but the policy was abandoned when she earmarked funds to keep companies afloat during the pandemic. Now the question is whether fiscal prudence is needed, both in Germany and the wider euro region. The Greens want public investment in a carbon-free future, while Merkel’s heirs favor a more cautious approach. Scholz’s SPD has signaled a continuation of generous spending after the pandemic without explicitly calling for a change to constitutional limits on borrowing. The outcome will affect yields on trillions of euros of assets. 

7. What are other big issues?

• Steering the EU: French President Emmanuel Macron is seeking to fill the vacuum that Merkel is leaving behind and lead the bloc’s push to eliminate harmful emissions. Her successor will need to confront disputes over democratic standards in Poland and Hungary, while also showing that following the U.K.’s example of leaving the EU is not an option.

• 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 be expected to help the EU develop a strategy against the expansion of Chinese interests, insist on fair competition and deal with Russia’s challenge to democratic values.

• 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, and reject the spending target, while the SPD seeks a more independent EU and doesn’t support the spending goal either.

8. What about climate change?

With the EU seeking to build momentum behind its Green Deal, the elements are there for a shift in German energy infrastructure and the industrial model that it powers. Climate policy -- touching on the country’s planned exit from coal, its drive for cleaner vehicles and more renewables -- is one of the biggest challenges, and one that could lead to tension between the Greens and any coalition partners. 

9. How key is immigration?

Merkel’s decision to open 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, 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, but the AfD is seeking to use the Afghanistan crisis to highlight its nationalist policies. 

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