Half-Term Headache: The German stance on Brexit may become more awkward and complicated

The House of Commons is on a half-term break this week, which makes life a little more peaceful in Whitehall. Theresa May has reason to be quietly satisfied with progress on the Brexit front since the start of this year. Her speech on 17 January, which clearly indicated that the UK would depart from the Single Market and probably detach itself from the Customs Union as well, was better received than it might have been. Even those who disliked the content appreciated the clarity of her stance. Although the Supreme Court had compelled her to enact primary legislation to trigger Article 50 of the Lisbon Treaty, she did not come close to a defeat in the Commons on any amendment to the Bill.
So, with the House of Lords unlikely to delay, let alone defeat, her Bill when it considers the matter next week, the Prime Minister might be able to meet what would be the optimal timetable for her. This would see the legislation become law on 7 March. It would then be followed by what may well be a modestly upbeat Budget on 8 March. That event would in turn be followed by an EU Council meeting on 9 and 10 March at which she would duly inform the EU-27 that Article 50 was to be triggered with a target date for the UK to leave the EU set at, or around, 1 March 2019. The initial negotiations (largely focused on the technical elements of the divorce) would start in earnest in May and the more serious discussions about a future relationship would occur once the French and (crucially) German elections were over. The real debate would hence start around October.
It is that last aspect that may be the cause of disquiet in Downing Street. At the beginning of 2017, both the French and German contests appeared to be comparatively predictable. Having been the surprise victor in the centre-right Republicans presidential primary in November, all it seemed that Francois Fillon, the former Prime Minister, had to do was show up on the ballot paper to succeed Francois Hollande. In Germany, Angela Merkel appeared set for another comfortable triumph with a margin wide enough that she could largely assert the terms of any subsequent coalition government.
Both of those assumptions are now much more suspect. The revelations about Mr Fillon’s payments to his wife and children for roles that many deem to be close to, if not completely, fictional, have thrown the French presidential race up in the air (and will be the subject of a future BVCA Insight). Even more stunning, in a more muted fashion, is that the German elections may produce a highly complicated result and one with very serious implications for Berlin’s stance on the Brexit process.
The German federal elections
Germany will vote on 24 September. It will do so according to its very distinct electoral system. Citizens have two votes. The first is for 299 British-style constituencies on the same method as our own (single plurality or first-past-the-post). The second is for at least 299 other seats, which are based on a regional party list system. The second vote is more important than the first in that no party can win seats in Parliament unless it clears a 5% threshold (or wins three or more of the aforementioned constituencies, in which case a party is allocated its share of seats based on its share of the votes even though that number is smaller than 5%).
The ultimate objective is to produce a Parliament that matches the percentages cast for each political party in the second vote. As this is done by region, and the calculation of seats has to be rounded up according to the Sante-Lague/Schepers formula (do not begin to ask), then the number of actual additional seats is almost certain to be larger than the theoretical extra 299 seats (last time it was 33 seats more).
All of this did not matter much when only three political parties crossed the threshold required for representation. It became harder when, after re-unification in 1990, that number increased to five (the CDU/CSU, SPD, FDP, Greens and the Left Party). If the opinion polls are correct, then in 2017 the number is likely to be six with the liberal FDP, which fell short of the 5% cent hurdle in 2013, coming back in and the populist anti-Euro, anti-immigration Alternative for Deutschland looking a sure bet to exceed the 5% requirement for the first time.
As neither the AfD (for the CDU) nor the Left Party, which has its roots in the old East German Communist Party, (for the SPD) are acceptable coalition participants (and neither of these two forces being anti-system would want to be in power anyway), the process of creating the next German government was always likely to be taxing. The odds were, nonetheless, that Mrs Merkel and the CDU would beat the SPD by around 10 points (possibly more) and so the existing CDU/SPD ‘Grand Coalition’ would be returned in a similar form.
That could still happen but it is no longer a racing certainty. This is because the SPD decided not to put forward Sigmund Gabriel, its Party Chairman and the current Vice Chancellor and Minister of Foreign Affairs, to be its official candidate for Chancellor and instead opted for Martin Schultz, the President of the European Parliament. Mr Schultz is a more charismatic figure and, as he has been out of domestic politics, is in a much better position to assail Mrs Merkel than those in his party who have served in the present administration with her. In a matter of a few weeks, the polls have closed sharply. It is even possible (although still unlikely) that the SPD will secure the most votes.
If the most plausible outcome occurs, and the CDU comes first in a fragmented Parliament, and has to seal another deal with an SPD which has run it far closer than in 2013, then this would have serious implications for where Berlin may choose to stand on the Brexit negotiations. These are:
The process of agreeing a new German government could extend in to early 2018
In 2013, it took the CDU and SDP more than two months after the September 2013 ballot to reach an agreement and then a further three weeks for the SPD membership to approve it. This meant that it was not sworn in until 17 December 2013. This was despite the CDU having defeated the SPD by a wide margin in the national vote (41.5% to 25.7%). If the distance between the two parties is much closer this time, then the bargaining will be more challenging and lengthy.
A new CDU-SPD administration in these circumstances would have a different instinct on Brexit
Put simply the stronger the CDU (and potentially the FDP) are in any administration then the more likely it is that the voices of German financiers and industrialists would be heard and these are about the most sympathetic constituencies in German public life for a benign Brexit agreement. The more influential the SPD is in the corridors of power, however, the weaker those voices will prove to be.
If Mr Schultz chooses to be Vice Chancellor and Foreign Minister then Mrs May has real trouble
If Mr Schultz pulls off a very respectable result for the SPD and there is another coalition with the CDU then he would be more than entitled to take the title of Vice Chancellor and also be Minister for Foreign Affairs and thus become absolutely pivotal to Berlin’s position on Brexit. He holds exactly the sort of views that one would expect an ex-President of the European Parliament to have formed on the subject. There is probably not a German alive whom Mrs May would less want at the centre of authority in Berlin. Yet by the time of the October UK half-term break, it may be close to inevitable.
Tim Hames
Director General, BVCA