Largely unperturbed by Angela Merkel’s failure to form a government after a September election, many Germans are taking the prospect of several more months of coalition talks in their stride.
The country is used to lengthy transitions but this is the longest since reunification in 1990. It is 87 days since the election and few experts see a government in place before March.
EU leaders fear delays to euro zone integration plans, some of which are to strengthen the banking system, and many economists warn Europe’s biggest economy must reform and invest in broadband and infrastructure to stay competitive.
But as caretaker chancellor, Merkel is voting at EU summits, parliament is passing laws required by international mandates, local authorities are wading through asylum applications and a bright outlook in Europe’s biggest economy is buoying the mood.
“I haven’t noticed much difference from before,” said Nadja Helling, 36, cradling a steaming mug of gluehwein at a Berlin Christmas market. “It’s not ideal but nobody is panicking.”
Domestic and foreign demand are driving solid growth and the effects of low borrowing costs and European Central Bank stimulus are supporting record-high employment levels and rising real wages.
“We have jobs and are enjoying the Christmas markets,“ said Helling’s friend, Silvia. “What’s the problem?”
The Munich-based Ifo institute raised its forecasts last week and expects the German economy to expand by 2.6 percent next year, the highest rate since 2011, adding, however, that this might be the peak.
The IfW institute in Kiel said the delayed formation of a government “does not pose an economic risk”, but also sounded a warning for the longer term.
“A boom may feel good but it carries the seeds of a crisis. The view that a boom is harmless, as long as consumer prices are under control, falls short,” said the IfW’s Stefan Kooths.
Little sense of crisis
A general view of the Christmas market on the square in front of the world famous gothic cathedral in Cologne, Germany, November 28, 2017. (Reuters)
The impasse has had little effect on Brexit talks because there is consensus among Germany’s main parties about the German, and EU, position towards Britain.
Plans for euro zone reform, however, are more contentious, although Merkel said on Monday, she hoped to make progress on the issue by March.
“The main possible negative effect is that the momentum in Europe (for reform), that was desired after the Brexit vote might be lost,” said Thomas Jaeger, politics professor at Cologne University.
The SPD, determined to stamp its identity on any coalition deal with Merkel, backs deeper integration than Merkel’s conservatives, but is split over whether it should agree to a ‘grand coalition’ with Merkel.
Its leader Martin Schulz has championed French President Emmanuel Macron’s proposals for a euro zone budget and finance minister and wants a “United States of Europe” by 2025.
“The only political crisis in Germany is the struggle for direction by the main parties, in particular the SPD,” said Diederich. “The SPD needs time to overcome this.”