Yellow Squares, Green Circles? Germany’s Coalition Kingmakers

Esther Brown and Marius S. Ostrowski

After four successive election victories by outgoing Chancellor Angela Merkel, this year’s German election has created a political situation marked by an unfamiliar degree of uncertainty. What is clear from the results so far is that there are four parties in the running to form the next government: the Social Democratic Party of Germany (SPD), the Christian Democratic Union/Christian Social Union (CDU/CSU), the Greens, and the Free Democratic Party (FDP). Three coalitions have the numbers in the Bundestag required to put together a viable majority: a ‘traffic light’ (SPD–Greens–FDP), ‘Jamaica’ (CDU/CSU–Greens–FDP), and another ‘grand coalition’ (SPD–CDU/CSU), although this unloved option—a continuation of the last eight years of government with the colours reversed—has been all but ruled out.

A ‘traffic light’ coalition currently has the greatest momentum. Preferred chancellor polling puts the SPD’s chancellor candidate Olaf Scholz on 56–62%, while the CDU/CSU’s candidate and party leader Armin Laschet trails on 11–16%. This trend is echoed by favoured coalition polling, which finds a ‘traffic light’ 22–28% more popular than a ‘Jamaica’ coalition. FDP party leader Christian Lindner captured this mood in the immediate aftermath of the election by observing that the three parties who had gained in vote share since 2017—SPD (+5.2%), Greens (+5.9%), and FDP (+0.8%)—could claim the strongest mandate to form the new government.

However, this apparent direction of travel masks significant unclarity about not just who will form the next government, but what sort of policy face it will present to the German electorate and the wider world. A ‘traffic light’ coalition is far from a foregone conclusion, and coalition negotiations over the coming months may present opportunities for the CDU/CSU to recover from its historic defeat and still emerge at the head of the future German government.


The Path to a Coalition

In Germany, the coalition formation process is highly formalised and considered politically binding. The coalition agreement documents outline not just the coalition partners’ intended policy outcomes but their quasi-codified roadmap for how these are to be achieved. These more detailed negotiations are preceded by “soundings-out” (Sondierungen), where parties establish the rough extent of their alignment and thus the viability of forming a government. Perceived infringements of the terms of these agreements can trigger government collapse, perhaps most famously in the case of the FDP’s withdrawal from coalition with Helmut Schmidt’s SPD in 1982 over fiscal policy disagreements, which paved the way for Helmut Kohl’s chancellorship and a new CDU/CSU–FDP coalition.

As three players are set to enter coalition negotiations, common ground is harder to find and the risks of breakdown are even higher. With only two politically feasible coalition options in play, failure to agree a sufficiently durable ‘traffic light’ government will leave a ‘Jamaica’ alternative waiting in the wings.

With all four parties vying for a place in government self-declared members of Germany’s “democratic centre”, it might appear that there are few areas of substantial disagreement that could stymie coalition negotiations. But this lack of polarisation belies the presence of several important areas of contention that must be bridged before a viable government can be formed—hence the widely-accepted speculation that the process could take until Christmas or even into the new year.

Ultimately, the question of who leads the next German government is still a battle between the CDU/CSU and SPD, but this time the contest is over which of them will be able to successfully woo the Greens and FDP together. In the “elephant round” of talk shows on election night, key figures in both the Greens and the FDP indicated the need for the parties to engage in official “preliminary soundings-out” (Vorsondierungen) with one another, with the aim of negotiating with either SPD or CDU/CSU from a common position.

This unprecedented pledge strikes at the heart of the policy (in)compatibilities between the four parties, and is testament to their determination to form a government. As figure 1 below indicates, it is the Greens and the FDP—rather than their larger rivals—who are often the furthest apart in their hawkish (red) and dovish (green) instincts on the key themes in German policymaking. By aiming to agree a common position ahead of official talks, the Greens and FDP have recognised their responsibility in giving the subsequent negotiations the best possible chance of success.


Figure 1. Areas of policy convergence and divergence in the 2021 election manifestos 


The Greens and the FDP: Bridging the Gaps

It is tempting to see the Green–FDP discussions as two different strands of liberalism ironing out their differences ahead of a cross-ideological negotiation with either the CSU/CDU or the SPD. The parties’ manifestos indicate agreement on some end goals: taking a more hawkish approach towards China, placing digitalisation at the heart of Germany’s modernisation, protecting against threats to civil rights, easing immigration and naturalisation, and greater respect for individual ways of life. Yet more often than not this is more of a coincidence than any expression of fundamentally shared values. This is evident in their respective approaches to China: the Greens are led by moral concerns over democracy and human rights, while the FDP prioritises protecting the interests of German industry.

Domestically, a central tension between them is their view on how far societal transformation should be led by the state. For the Greens, the state is an agent that acts on behalf of the wider community, while the FDP views the state as a brake on the action and initiative of the private sector. This frames their approaches to four major policy questions and areas of contention: climate action, fiscal policy, transport, and social justice. In order for a workable government to be formed, either the two parties must sketch out their ideological middle ground, or one of them has to concede their starting position.

Under the “Realo” leadership of Annalena Baerbock and Robert Habeck, the Greens are inclined to pragmatism, but will not accept policy positions that compromise on the climate agenda, and want to be able to sell their agreement as satisfying the radicalism demanded by their base. Meanwhile, the FDP is driven by a number of core ideological concerns regarding economic freedom, digitalisation, and the centrality of business enterprise. However, this does not preclude scope for compromise on the most pressing policy questions, premised on the FDP accepting symbolic “wins” in exchange for more tempered rhetoric from the Greens.

Opinion polling in the run-up to election day, combined with the Greens’ uptick in vote share, has shown climate change to be the most important policy area in this election. Yet (as figure 1 indicates) it is a major area of contention between the Greens and the FDP, with disagreements over codifying key climate targets, the role of hydrogen and nuclear energy, the role of emissions trading, and the use of tax incentives. The starting-point for finding a compromise is the mutual desire to redistribute ‘climate dividends’, with both parties anxious to avoid the emergence of a German gilet jaune movement, and carving out a prominent role for the EU in the energy transition. If the Greens can reframe their policy approach in more business-friendly language—which the FDP can sell as opportunities for sustainable innovation rather than regulatory restrictions—the FDP may become more willing to accept the Greens’ red lines, thus creating space for consensus. This may include the establishment of a Climate Ministry, off-balance-sheet investment agencies, and ambitious but non-binding climate targets.

On fiscal matters, the Greens’ and FDP’s starting positions are virtually polar opposites. However, on public spending both parties enter coalition negotiations facing the need to make significant concessions: the Greens have no prospect of Bundestag support for their aim to overhaul the constitutional debt brake, while the FDP has already indicated its willingness to move away from a strict schwarze Null commitment. Targeted bonds and investment agencies for (e.g.) green, digital, and transport spending may prove a successful way to bridge the gap between state-led and private investment. Taxation, meanwhile, is traditionally a FDP red line, and the Greens may have to abandon some of their aspirations to use tax as a social justice lever. Yet both parties agree on the need for appropriate digital levies and greater tax transparency: closing tax loopholes may simultaneously satisfy the Greens’ desire for increased revenue as well as the FDP’s aim for tax simplification. Securing their climate demands may require the Greens to jettison their plans for a wealth tax, potentially in return for FDP agreement on inheritance tax reform.

Transport and social justice have received less coverage in the election, but may prove thornier issues to navigate. The two parties differ profoundly in their attitudes towards state investment versus privatisation in the rail network, targets for replacing internal combustion engines with electric vehicles, speed limits, and aviation tax. Meanwhile, on social justice, the FDP strenuously opposes Green ambitions for a statutory minimum wage, more Hartz IV benefit, and basic state child security provisions, and instead wants to relax protections against employee dismissal. This offers limited space for compromise, but is unlikely to lead to wholesale breakdown in the parties’ talks. Unless the SPD or CDU/CSU as senior coalition partner tips the balance in favour of either position during later negotiations, significant parts of both policy areas may be hived off to the state or municipal level.


Coalition Prospects Compared

If the Greens and FDP can settle a common position, they will bring this to the table with either the SPD or CDU/CSU in the next stage of negotiations. With the collapse of ‘Jamaica’ coalition talks after the 2017 election still fresh in their memories, both Green and FDP leaderships are firmly committed to maintaining a united front and ensuring that both play an equal role in the future government—including balanced ministerial portfolio allocations. This means that the parties are likely to conduct an even-handed comparison of both the SPD’s and the CDU/CSU’s offerings.

As the party with the largest vote share, the SPD is seen as having the strongest mandate to begin coalition negotiations. Figure 1 illustrates the strong ideological affinity between the SPD and Greens on most policy areas—in particular taxation and investment—and with the FDP on migration, carbon pricing, and foreign policy. If the three parties can unite these overlaps in order to form a government, it would probably involve Habeck as Finance Minister and Lindner as Foreign Minister, though under a ‘Jamaica’ coalition these responsibilities may be reversed. However, the SPD’s trade union ties may create frictions over the labour market disruptions caused by the speed of the Greens’ proposed energy transition. The SPD will hope that the FDP’s resistance to sector-specific approaches and support for a minimally disruptive industrial transformation may have already diluted the Greens’ proposals during the previous negotiations. Meanwhile, the tensions between the SPD’s and the FDP’s polarised fiscal instincts should not be underestimated, and the FDP might feel sidelined in a coalition with two pro-tax parties.

If the SPD cannot sufficiently satisfy the FDP’s fiscal policy preferences, ‘traffic light’ talks may break down. The Greens and the FDP would then explore the possibility for a ‘Jamaica’ coalition, although the price they would exact is likely to be that it must be led by someone other than Laschet, whom polls show is conclusively held responsible for the CDU/CSU’s defeat. The most plausible candidate is CSU leader Markus Söder, the only politician to regularly outperform Scholz in popularity polling. However, despite any previous optimism about the prospects for a ‘black-green’ coalition, fundamental disagreements over several policy areas may pose insuperable obstacles. The Greens would be isolated in their demands for more public spending, a relaxation of the balanced budget requirement, and reforms to carbon pricing and transport, while the CDU may need to concede on migration policy and risk empowering their right-wing factions. The only area not requiring substantial compromise is foreign policy, which would broadly see a continuation of the Merkel era.

On substantive policy overlaps, the FDP appears more readily reconcilable to the SPD than the Greens are to the CDU/CSU. The FDP is also unlikely to disproportionately assert its position, considering its fourth-placed result, with the smallest vote share increase, and a reputation for triggering coalition collapses to overcome. Meanwhile, the ultra-pragmatic CDU may be loath to set a precedent for CSU chancellorship, considering the protracted infighting during their selection process, while Söder and the CSU might prefer to wait for their own outright election victory. In a ‘Jamaica’ coalition, the CDU/CSU would be the weak and fragmented leader of a broad-church government with a declining vote share; in opposition, it stands the chance to resolve its internal divisions and engage in a necessary process of post-Merkel renewal. Although at this stage it would be naïve to bank on a ‘traffic light’ coalition, it remains the most likely outcome of the next few months of negotiations.