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Breakingviews - Merkel’s weakness could give Europe strength
November 20, 2017 / 12:54 PM / a month ago

Breakingviews - Merkel’s weakness could give Europe strength

LONDON (Reuters Breakingviews) - Good sometimes comes from bad. The collapse of German coalition talks on Monday, after the Free Democrats (FDP) walked out of discussions led by Chancellor Angela Merkel, definitely looks inauspicious. Prolonged political uncertainty in Europe’s biggest economy will delay reforms that would better protect the euro zone against the next downturn or crisis. But a wholesale revamp of the single currency area will in the end be easier if Merkel doesn’t have to pander to a party that opposes regional fiscal integration.

Leader of the Christian Democratic Union (CDU) Angela Merkel arrives at the Baden-Wuerttemberg State Representation office for exploratory talks about forming a new coalition government in Berlin, Germany, November 19, 2017. REUTERS/Axel Schmidt

The FDP had wanted to run Germany’s finance ministry in the mooted “Jamaica coalition”, which would have included Merkel’s Christian Democrats, its CSU sister party, and the Greens. In such a coalition the FDP, which has strict views on fiscal policy in Germany and abroad, would probably have opposed French President Emmanuel Macron’s push for a euro zone budget, viewing it as an unacceptable step to German taxpayers subsidizing other members of the single currency club.

Merkel has several political options that might be better for Europe. One is to try to form another grand coalition with the Social Democrats (SPD), which is more favourably disposed to ideas of deeper integration. But the SPD may be too scarred by the political price it has paid at the ballot box for past coalition policies. An easier choice might be for Merkel to form a minority government, possibly with the Greens, and then depend on parliamentary support from the SPD and others to pass key policies.

Even this potentially unstable grouping would be more propitious for euro zone reform than a government that includes the FDP. Winning parliamentary approval for closer fiscal coordination between members of the single currency would not be easy, but with the FDP in the government it would probably be a non-starter.

Any of these contortions is preferable to new elections. There’s no guarantee that another ballot would result in a markedly different outcome, and some fear that the far-right Alternative for Germany (AfD) might benefit from gridlock among the mainstream parties. The German economy is resilient enough to withstand a period of political uncertainty. For Europe, a weak government that is willing to countenance closer fiscal integration in the euro zone might be a better than a strong one that won’t.

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