Germanys Chancellor Angela Merkel won 41.5 percent of the vote in Sundays elections, the largest share of the electorate since Chancellor Helmut Kohl took German reunification to the country in 1990. That amounts to 311 out of 630 seats in the Bundestag (Parliament). No glass ceiling in Germany for female politicians.
But despite Merkels victory, her Christian Democratic Union is five seats short of an absolute majority in the Bundestag. In order to govern, Merkel will have to form a coalition with some left of center parties. Options include the center-left Social Democratic Party (25.7 percent of the vote), the Left (8.6 percent) and the Alliance ‘90/the Greens (8.4 percent).
How far will Merkel have to compromise her principles? And what effect will this have on Germanys fiscal health? Although Germanys unemployment rate is 5.3 percent, its annualized GDP growth rate is less than one percent. It calls the shots in Europe, but economic compromise with the left can tip its economy into reverse.
Based on the electoral returns, Germany has a conservative majority. Adding up the percentage vote shares of the three "right wing" parties, namely the Christian Democratic Union (41.5 percent), the Free Democratic Party (4.5 percent), and the euro-critical Alternative for Germany (4.7 percent) yields more than 50 percent of the electorate.
Since the Free Democratic Party (with whom Merkel formed a coalition from 2009 to 2013) and the Alternative for Germany received fewer than 5 percent of votes, they cannot be represented in the Bundestag. It will be the first time since 1949 that the Free Democratic Party has not been represented in the Bundestag.
While the three left-wing parties together hold the majority of the seats due to Germanys electoral rules, it is unlikely that they will form a new government. The candidate for chancellor of the Social Democratic Party, Peer Steinbrück, announced before the elections that his party does not intend to form a coalition with the Left, which was founded in 2007 as the merger of the Party of Democratic Socialism and other small new parties.
Merkel is likely to join a coalition with the Social Democrats, or, failing that, the Greens.
If the Christian Democrats and the Social Democrats enter a grand coalition (called so because they would hold a comfortable majority with 503 out of the 630 seats) Merkel would stay chancellor as head of the biggest party. She would be able to choose most of the new ministers and policy decisions for the next four years.
But since she needs the votes of the Social Democrats as well, she might have to make some compromises.
The parties are far apart on major economic issues.
Taxes. The Christian Democrats ran on a platform of keeping taxes at their current rates, with a top rate of 45 percent. They want to keep tax splitting, where combined earnings are divided into two, resulting in lower tax rates for married couples. This favors traditional families where one person is earning a lot and the other less.
The Social Democrats wants to raise top rates to 49 percent on incomes of more than $135,000 for singles, or $270,000 for married couples. They want to abolish the tax splitting for newly-married couples because they believe that the traditional model of a family no longer represents the living situation of many Germans.
Minimum wage. The Christian Democrats want employers and workers to negotiate wages, in the absence of collective bargaining agreements, allowing them to vary by region and industry.
In contrast, the SPD wants to set a minimum wage of $11.50, adjusted every year. In East Germany, where wages are lower, 20 percent of employees earn less than $11.50 an hour. Raising the minimum wage would particularly hurt East Germany.
Retirement. The Christian Democrats want to keep the retirement age at 67, but increase pensions for parents whose children were born before 1992. The Social Democrats want to allow retirement at 63 for those who have worked for 45 years and paid national insurance contributions. The Social Democrats see earlier retirements not as a drain on the public purse, but as a way to increase job openings for young people.
Debt. The Christian Democrats want to pay down Germanys national debt and not take on additional obligations. They do not support additional purchases of Eurobonds, because German taxpayers would then be responsible for the debt of other countries.
The Social Democrats are open to taking on more debt from European countries that need bailouts, such as Portugal, Italy, Ireland, Greece, and Spain. They support an investment fund for Europe and harmonization of fiscal policy, a polite word for higher German taxes. They want "fair competition," which for them means taxes on business profits and capital income.
The Social Democrats policy platform is not new; it has been tried by most other major European countries. The results have been consistent and predictable. More regulations, more taxes, and more debt have led to economic decline, not growth. Germany and Merkel have done better; they can continue to do better.
Original Source: http://www.realclearmarkets.com/articles/2013/09/24/no_glass_ceiling_in_german_for_politicians_100628.html