Merkel Allies Hold Out on Coalition Talks in German Waiting Game

Germany’s Social Democrats are playing hard to get as Chancellor Angela Merkel’s victorious party bloc increases pressure for the start of coalition talks.

Three days after Merkel won the highest share of votes in a German national election since 1990, negotiations on her third-term government may still be more than a week away as Europe’s biggest economy faces an extended political limbo.

Leaders of the Social Democrats and Greens, Merkel’s two potential junior partners, held out today as they debated the merits of helping her govern or staying in opposition in what may be attempts to extract concessions on policy.

“Ninety percent of my state’s party members are against a grand coalition,” Hannelore Kraft, the SPD premier of North Rhine-Westphalia, Germany’s most populous state, was cited as telling party members by Der Spiegel magazine. “It’s not a disgrace for us to go into the opposition.”

Yet an SPD official in Berlin said the party hardly has any alternative to linking up with Merkel and that holding new elections wouldn’t help the Social Democrats. The official, speaking on the condition of anonymity because he wasn’t authorized to talk to reporters, said the main difficulty is grass roots SPD opposition to a grand coalition.

“The SPD will come around to a grand coalition,” Jan Techau, Carnegie Europe’s Brussels office director said in a phone interview. “They want to drive up the price of doing a deal with Merkel and are playing a tactically smart game by playing hard to get.”

The other option for Merkel, an alliance of the Greens, was rejected both by a Greens party leader and by her Bavarian Christian Social Union sister party.

Unstable Coalition

A coalition with Merkel’s Christian Democrats would be unstable because of policy differences, Katrin Goering-Eckardt, a Greens leader in parliament, said on Deutschlandfunk radio.

Bavarian Prime Minister and CSU leader Horst Seehofer said yesterday that his party rejects allying with the Greens.

Finance Minister Wolfgang Schaeuble said he doesn’t expect a deadlock that would force a repeat of the Sept. 22 election. “There will be no new elections,” the weekly Die Zeit quoted him as saying in an interview. “Democratic parties” have to work together “after the gun smoke of campaigning has lifted.”

Bild, Germany’s most-read daily newspaper, speculated in a full-page spread on a possible coalition of the two biggest parties with Merkel as chancellor, Schaeuble as finance minister and Social Democratic opposition leader Frank-Walter Steinmeier as foreign minister. Steinmeier served as foreign minister in Merkel’s first government, a grand coalition, from 2005 to 2009.

Euro Rises

The euro rose 0.2 percent to $1.3506 at 12:25 p.m. in Berlin as the derivatives market shows the most confidence in the joint currency since before the financial crisis. Germany’s DAX Index of 30 leading stocks fell 0.3 percent to 8,638.62.

Merkel will probably ask German President Joachim Gauck to let her keep governing with her current cabinet if a coalition isn’t in place when the newly elected lower house, or Bundestag, meets for the first time on Oct. 22, according to a CDU official who spoke on condition of anonymity because the party’s deliberations are private.

Talks between Merkel and the SPD, the biggest opposition faction, could take time. In 2005, it took 65 days to swear in their grand coalition, a record in post-reunification Germany. A meeting of 200 SPD members representing the party base will deliberate the party’s stance toward Merkel on Sept. 27.

Leading Christian Democrats pressed the opposition parties to come to the bargaining table. Social Democrats and Greens shouldn’t “ignore the unequivocal intent of the voters,” Michael Grosse-Broemer, the Christian Democratic Union’s parliamentary whip, said in a message on Twitter.

“We are confident that a grand coalition will emerge,” though lengthy coalition talks “might increase market volatility in the coming weeks,” Bank of America Merrill Lynch economists Tobias Blattner and Laurence Boone said in a note today. Yet even an SPD-led finance ministry wouldn’t break “Merkel’s promise not to underwrite the debt of other euro-area member states.”

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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