Merkel Begins Third Term Strengthened by SPD Partner Backing

Angela Merkel begins her third term as German chancellor buttressed by the overwhelming support of her Social Democratic coalition partner and with her veteran finance minister, Wolfgang Schaeuble, at her side.

Merkel’s government will be sworn in tomorrow after almost three months of bartering on policies and personnel between her Christian Democratic Union, its CSU Bavarian sister party and the SPD. The three party leaders and the members of Merkel’s new cabinet signed a coalition accord today outlining their joint platform for the next four years.

“This coalition agreement is a good foundation on which to shape Germany’s future and above all to ensure that the people in our country have a positive future,” Merkel said in Berlin at the signing ceremony. SPD leader Sigmar Gabriel said the treaty was “good for the people of Germany and Europe.”

With 504 government lawmakers of the 631 seats in parliament’s lower house, the Bundestag, Merkel’s re-election as chancellor is assured, allowing her to travel to a summit in Brussels of European Union leaders on Dec. 19 strengthened at home. Regaining control of the upper house that she lost midway through her second term means her coalition will be able to push through policy regardless of opposition votes.

‘Fortifying Europe’

“To get such a government for her top priority -- Europe - - she has yielded a lot on domestic and economic issues” to the SPD, Holger Schmieding, chief economist at Berenberg Bank in London, said by phone. “She wants to pursue her policy of fortifying Europe against future storms and ending the current euro crisis well. To have that, a stable government with a strong majority is good for her.”

Following her election in the Bundestag, Merkel will hold the first meeting of her new cabinet tomorrow evening, twelve weeks and 2 days after her Sept. 22 election victory. On Dec. 18, she addresses lawmakers on her EU summit goals before flying to Paris for dinner with President Francois Hollande, her chief spokesman, Steffen Seibert, told reporters today.

Merkel, 59, Germany’s first woman chancellor and the first from the formerly Communist east, extends her reign as Europe’s most powerful leader amid signs the fallout from the sovereign debt crisis that dominated her second term may be easing.

Greece, the epicenter of the crisis since late 2009, is targeting a primary surplus for this year, fellow aid recipient Ireland is exiting its bailout and Spain’s fiscal outlook is improving. The yield difference between Spanish 10-year bonds and equivalent German debt narrowed to the least in more than two years last week.

Economic Outlook

Germany’s economic growth is forecast to accelerate to 1.7 percent next year from 0.5 percent in 2013, according to the government’s Oct. 23 outlook. Merkel says Germany will balance the budget, adjusted for one-time effects and swings in the economy, next year.

For Merkel, who has pledged to combat record levels of youth unemployment that persist in Europe, the final hurdle to her third term at the head of Europe’s biggest economy was cleared at the weekend as SPD members voted three-to-one in favor of entering a coalition with her bloc.

The announcement of the 16-member cabinet capped a months-long holding pattern on European policy as euro-area leaders awaited the results of the election campaign and then maneuvering for a new coalition.

Schaeuble, Merkel’s point man throughout the crisis that spread from Greece, retains his post. The SPD’s Frank-Walter Steinmeier returns to the Foreign Ministry he held from 2005 to 2009, while Ursula von der Leyen, a Merkel ally and possible successor, was an unexpected choice as Germany’s first female defense minister.

Energy Priority

Merkel has said her immediate priority is slowing the rise in electricity prices, partly a result of her 2011 decision to shutter Germany’s nuclear-power plants and switch to renewables.

Responsibility for the biggest shift to clean energy of any developed country now falls to Gabriel, 54, who served as environment minister in Merkel’s first term and who will now head a newly configured Economy Ministry.

“We are a strong industrial nation and the energy shift will bring huge opportunities for creating jobs, but we also have to guarantee that industrial Germany remains reliable and expansion-oriented,” Gabriel said yesterday.

The SPD, which also takes labor, environment, justice and families, announced its own surprise by enticing European Central Bank Executive Board member Joerg Asmussen back to government as a deputy in the Labor Ministry. Before joining the ECB, he served as a deputy finance minister under Schaeuble.

SPD Misgivings

Gabriel cited concessions won from Merkel including a national minimum wage plus early retirement at 63 for some workers as he sought to dispel SPD misgivings about serving as her junior partner for a second time since 2005.

Merkel upheld her campaign pledges to reject higher taxes and pooled euro-area debt that helped her bloc to win 41.5 percent to the SPD’s 25.7 percent on Sept. 22, the most emphatic election victory since German reunification.

The fate of the grand coalition had rested with the SPD’s 475,000 members, some of whom said their party should stay out of government to build toward the next election in 2017. In the end, about 76 percent of the 337,500 valid votes cast were in favor of allying with Merkel, the SPD said on Dec. 14.

“This is a very strong mandate that the Social Democrat rank and file have given to the coalition agreement,” said Schmieding. “It makes Merkel’s government stronger in that it makes it even more likely that it can last a full term.”

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