No one took the situation in Germany seriously until the votes were cast. The world was convinced current Chancellor Angela Merkel would walk to a secure result and pick up another four-year term in Germany. Now her hold on power is up for grabs.
Upstart, anti-immigration, ‘right-wing’ Alternative for Germany picked up 13% of the votes on Sunday. But, that wasn’t the big story. The big story is that the minor parties – The Left, The Greens and conservative FDP, Merkel’s coalition partner – all held onto their share, taking points from both Merkel’s CDU/CSU and the Social Democrats (SDP).
But because parliamentary politics is a little more complicated than those here in the U.S. a two to three point shift in the results for the top two parties can have disastrous effects on coalition building.
I told you last week Merkel’s headaches are only just beginning.
What Happens to Merkel Affects Spain
We saw this last year in both Span and Portugal. In both places insurgent Euroskeptic parties shifted the countries left. That threw the government-building process into chaos. The after-effects are showing themselves in Spain.
The brutal crackdown on the Catalan Independence Referendum by Prime Minister Mariano Rajoy is minting new radicals across Spain. Spain’s intransigence stems from orders from Brussels and that means Merkel.
The EU cannot afford to have anyone choose to leave the EU. Look at how hard they are fighting Brexit. It’s more than just the threat to any globalist drive for one-world government. It’s about money and the fragility of the EU banking system.
Spanish sovereign debt is worthless if Catalonia secedes from Spain. Barcelona is the engine of the Spanish economy. It is the majority of where Spain’s advanced economy resides. It might be 20% of Spanish GDP, but it is likely more than 50% of its high-margin, value-added GDP.
Without Catalonia Spain cannot sustain the confidence of investors to hold its government bonds. The European Central Bank will now have to work even harder to keep the sovereign debt markets from collapsing.
And if Merkel has any trouble forming a government then this will only add to investor unease.
The problem is that the EU, while supposedly a voluntary arrangement, is more like a Roach Motel – Countries check in, but they CAN’T check out. As long as Germany is in charge of the situation in Brussels this will be the policy.
But, with Merkel almost terminally-weakened on Sunday, we can’t continue to think in those terms.
The crucial player in this will become her current Foreign Minister, Sigmar Gabriel. The former leader of the SDP, Gabriel is also the most popular politician in Germany. And if the SDP makes good on its threat to Merkel to refuse to join a ‘Grand Coalition’ then Gabriel could swoop back in to take control of the SDP from the feckless EU-quisling Martin Schultz.
At that point, everything goes haywire.
But, the likely scenario is that Schultz extracts a few concessions from Merkel. Because that is what Brussels will demand.
Nothing important changes – Merkel as Chancellor, Wolfgang Schauble as Finance Minister and Gabriel as Foreign Minister – and all of this is put behind us.
The shift ‘right’ in the German parliament, however, will further strengthen Schauble’s hand.He will still rule the EU Council of Finance Ministers and hold the line on negotiating any country’s sovereign debt.
What happened to Greece will continue to happen to everyone else. Because, now, Schauble has even more of a democratic mandate from German voters to tighten EU finances and punish the lazy PIGS – Portugal, Italy, Greece and Spain.
So, Spain must crack down on Catalan independence. It has no choice. Rajoy is taking his marching orders from Brussels. It’s why he was installed as Prime Minister last year even though the vote was so fractured no government should have formed.
He was Germany’s pick previously, the same way that Paolo Gentiloni was their guy to succeed Matteo Renzi in Italy earlier in the year – without any vote remember.
That is the worst-case scenario. But, if Merkel cannot cut a deal with either the Greens or the SDP, then we may be facing calls for a second round of voting. Brussels will be dead-set against that.
At that point, a last-minute deal to save Merkel will emerge but the anger will still be there.
The EU cannot afford people going to the polls and speaking their minds. The result is almost always the revelation of an inconvenient truth. People hate being dictated to by unelected technocrats who sell them out for a vague ‘common good’ which results in everyone getting poorer.
They can kick this can down the road a little further but it’s getting awfully close to the tar pit lurking just over the hill.
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