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Following the 26 September Bundestag elections, a so-called traffic light coalition led by Olaf Scholz and his Social Democrats (SPD) is, for now, the most likely outcome. However, if talks between the Greens and the center-right Liberals (FDP) were to fail, a grand coalition with Armin Laschet’s Christian alliance (CDU/CSU) remains a possibility, despite the current turmoil after Angela Merkel’s 16 years at the chancellery ended with the party’s worst result since 1949.

The central scenario, however, is being prepared by other players. The Greens and the FDP will begin talks between each other on 29 September, searching for some common ground programmatically. This approach is as unprecedented as the three-way coalition that could result from it, but it makes sense for several reasons. First, tensions between the FDP and the Greens were a key reason for their coalition talks with Merkel’s CDU/CSU to fail back in 2017. Second, both smaller parties are looking into programmatically different directions and need to bridge the gap between public investment and regulation for the green transformation (the Greens) and opposition to tax hikes and insistence on fiscal discipline (FDP) for any coalition to work.

Finally, the smaller parties are correct to highlight that they have been the most popular among younger voters. Their electorates demand the greatest change after years of Merkel’s often-paralyzing incrementalism backed by CDU/CSU and SPD. Much of the traditional sense of competition between the two smaller parties is, in reality, due to similarities between the two, including their younger appeal, their liberal approaches to immigration, and their defense of civil rights against security (and, partly, even pandemic) concerns. These are areas where the SPD – electorally as strong as the two smaller parties combined – may try to provide some balance, for instance, by nominating a more conservative interior minister, as the party did in the last red-green coalition as of 1998 (even if this could generate tensions with the SPD’s own left wing on which Scholz will need to keep an eye anyway).

However, the central question for all partners will be the trade-offs between greater investment and fiscal solidity. The SPD grassroots are leaning towards the Greens’ investment ideas, but Scholz has won the election as a fiscal realist who should not find it too hard to strike a deal with the FDP. The SPD will have to position itself not only between the two smaller parties but also as a counterweight to its two partners representing upper-middle-class voters. It will need to deliver some tangible results for its own older and lower- income voters, i.e., regarding pensions, healthcare, and children growing up in poverty – all within an overall framework of fiscal responsibility.

Against this complex backdrop, previously optimistic forecasts about greater (fiscal) integration in Europe forgot to pose a fundamental political question: in a coalition that will already require tough choices from divergent partners, who is supposed to invest major political capital into costly plans for Europe? If some of Germany’s green transformation and digitalization projects can be geared towards greater coordination on the European stage, that would be positive. But beyond that, and short of major crises, Europe might first and foremost remain the stage on which the next chancellor acts as a pragmatic broker of short-term compromise at the political center – not unlike his predecessor.

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GERMANY: The fault lines to overcome for a traffic light coalition

Following the 26 September Bundestag elections, a so-called traffic light coalition led by Olaf Scholz and his Social Democrats (SPD) is, for now, the