Just over a month ahead of the 26 September Bundestag elections, momentum for the Social Democrats (SPD) appears to be growing. Their chancellor candidate, Finance Minister Olaf Scholz, has long been the most popular of the three contenders. Now, however, his party is also beginning to benefit. For the first time in years, a recent poll even put the SPD narrowly ahead of Armin Laschet’s Christian alliance (CDU/CSU). This follows several gaffes by – and subsequent internal debates about the candidatures of – Laschet and the Greens’ Annalena Baerbock.
Back in 2017, the early hype around Martin Schulz’s candidature ended in electoral disaster for the SPD. In contrast, this year’s slow but steady SPD growth is occurring at a much later – and perhaps more decisive – phase of the campaign. It coincides with a similarly steady loss of support for CDU/CSU and the relative stagnation of the Greens. Some CDU/CSU leaders have reacted with harsh attacks on Scholz’s alleged agenda of big spending and tax hikes. The substance of these claims is questionable, but they do suggest that Laschet’s already nervous alliance is taking the threat very seriously.
With more such noise likely ahead, investors should keep in mind that, first, Scholz is an outspoken moderate (if not conservative) within the center-left SPD. The SPD is more willing than CDU/CSU to invest in areas such as the green transformation, digitalization, but also health and housing. However, a fundamental departure from the sound public finances agenda is not in the cards with Scholz. Second, an SPD-led government would very likely depend on support not only from the equally more investment-minded Greens, but also from the fiscally conservative FDP which has already requested the finance ministry. The FDP could use its kingmaker status to demand further concessions from the SPD – perhaps even to replace the Greens with CDU/CSU – or otherwise insist on Laschet as chancellor, which would the best outcome for the FDP policy-wise.
The possibility of multiple three-way coalitions is an unprecedented prospect. This renders government formation procedures very important. However, the crucial stages of this process are not formally regulated; only the very last step is legally codified: once parties have agreed on a coalition, the federal president proposes a candidate for chancellor to the Bundestag. Prior to that, it is an accepted convention that the largest coalition party fields the chancellor, but this does not have to be the biggest Bundestag group. In the old world of the West German three-party system, CDU/CSU regularly became the largest Bundestag group, but the SPD still managed to field chancellors Brandt and Schmidt, being the senior partner in a coalition with the (back then much more progressive) FDP.
On 26 September, the leader of the largest Bundestag party will claim the mandate to form a government, offering exploratory talks to the other parties. However, the positioning of the Greens and, especially, the FDP will be crucial. As demonstrated in 2017, coalition talks could still fail, opening the door to alternative compositions.
In the meantime, Scholz is benefiting from his opponents’ mistakes, but his key strength might be his stubborn commitment to a strategic bet: perhaps the real lesson from Angela Merkel’s four consecutive election victories is that there is structural demand for an utterly pragmatic brand of social democracy.