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Scenting power, potential Merkel coalition partners edge closer on Europe
September 25, 2017 / 3:02 PM / 3 months ago

Scenting power, potential Merkel coalition partners edge closer on Europe

BERLIN (Reuters) - Nominally, they are at odds on Europe. But Germany’s Greens and liberal Free Democrats (FDP) gave remarkably similar messages on European reform on Monday as they began exploring a coalition alliance with Chancellor Angela Merkel’s humbled conservatives.

People walk past an election campaign poster for the upcoming general election showing the leader of Germany's Free Democratic Party (FDP) Christian Lindner in Berlin, Germany, September 13, 2017. Picture taken September 13, 2017. REUTERS/Axel Schmidt

After her conservative bloc haemorrhaged support to the far-right in Sunday’s election, Merkel has little choice but to try to work out a three-way coalition with the Greens and FDP - an tie-up untested at national level and widely seen as risky.

If their party programmes are taken at face value, the Greens want to press ahead with deeper European integration and the FDP wants to hold it back - a conflict that could frustrate coalition talks with Merkel, who wants a “stronger Europe”.

But at back-to-back news conferences on Monday, the FDP and Greens both made conciliatory noises towards French President Emmanuel Macron, who ran for the French presidency on a pledge to “relaunch” the European Union in tandem with Germany.

Macron is due to set out his proposals for EU reform and strengthening monetary union on Tuesday.

“We have a great interest in the success of the French republic and in its strength,” FDP leader Christian Lindner told a news conference.

“Germany will not become stronger if France becomes weaker, but Europe will profit as a whole if all its members return to a path of economic success. That is why we wish Mr. Macron all the best.”

Less than an hour later, Greens co-leader Cem Ozdemir delivered almost exactly the same message. “It is clear that we have a vital interest in France being successful,” he said.

The headline comments glossed over deeper differences between the two parties on Europe, but indicated a “glass half full” attitude suggesting both want to find common ground on Europe that will help them forge a ruling coalition with Merkel.

Both the FDP and Greens played down the prospect of such a three-way bloc during the election campaign, but as they have been out of government for four and 12 years respectively, they may be lured into an alliance by the prospect of power.

NO RED LINES

Pledging to form a stable government, Merkel herself said she would not set out red lines on Europe policy for now - an open-minded approach that gives the three parliamentary groups wiggle room to work out a compromise.

“My view is that we can use more Europe but this has to lead to more competitiveness, more jobs and more clout for the European Union,” she said in a message that could appeal to the pro-business FDP and the Greens, who are keener on regulation.

Merkel also urged the centre-left Social Democrats not to shut the door on a re-run of their “grand coalition”.

The Greens and Free Democrats are from opposition ends of the political spectrum and must navigate differences on tax policy and immigration, as well as Europe, before they team up.

In their party programme the Greens say they reject a division of Europe. The FDP, by contrast, favours a “multi-speed Europe” - differentiating a northern core of fiscally disciplined, wealthy member states from the rest.

The FDP wants euro zone countries to be able to leave the bloc rather than stay under an “interminable rescue policy”, and favours winding down the lending capacity of the euro zone’s ESM rescue fund - unlike Merkel’s finance minister, who has proposed developing it into a European monetary fund.

Lindner, who said during the election campaign that Greece should leave the euro, said on Monday his party could not agree to a common euro zone budget that would help redress economic imbalances within the bloc.

That position seems to be at odds with the vision presented by Macron, who wants to overhaul the euro zone and introduce a budget and finance minister for the single-currency region.

The euro EUR= snapped a two-day rising streak on Monday after a surge in support for the far right in the election prompted investors to lock in gains in one of the most profitable currency trades of the year.

But investors remained sanguine about the prospects for European reform under a three-way coalition of conservatives, FDP and Greens - known as a “Jamaica” alliance after their respective party colours: black, yellow and green.

“Where the FDP might push back on the next potential government’s European policies, expect the Greens to pull forward, enabling Chancellor Merkel’s middle-ground to prevail,” said Andrew Bosomworth, a senior portfolio manager at Pimco, one of the world’s largest bond funds.

Additional reporting by Caroline Copley and Michael Nienaber; editing by Mark Heinrich

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