Why Merkel’s exit matters beyond Germany

When Chancellor Angela Merkel steps down after 16 years in power, Germany's status in Europe and the world will be on the line. She put her stamp on global politics defending moderation and liberal values, and as the indispensable leader of an often fractious European Union. Germany's parliamentary system makes it easier for smaller parties to win blocs of seats, so the path to victory for her successor likely lies in rounds of horse-trading to form a messy three-way coalition government. That process could last for months after the September 26 vote, the most unpredictable in decades. Merkel will remain at the helm until the Bundestag votes for a new chancellor.

1. What makes the outcome hard to forecast?

Since the most recent election in 2017, traditional mainstream parties have declined while the Greens -- who appeal to a wide swath of voters backing policies to tackle climate change -- have gained ground. (After that election, it took about six months to form a coalition.) With Merkel's chosen successor Armin Laschet trailing in polls, her centre-right bloc is at risk of being excluded from power for the first time since 2005.

2. What is the big issue?

Key to the puzzle are parties that either want to restore Germany's traditional budget prudence -- relaxed during the pandemic to unleash waves of aid -- or expand borrowing to help finance the transition to a more climate-friendly and technologically advanced economy. The centre-left Social Democrats, led by Finance Minister Olaf Scholz, gained in the polls from mid-August. Scholz's SPD has signalled a continuation of generous spending after the pandemic, though both he and Merkel's centre-right bloc say a constitutional limit on adding too much debt should be eventually reinstated. A 63-year-old former Hamburg mayor and trained labour lawyer, Scholz has a similar low-key pragmatism to Merkel, who remains by far Germany's most popular politician.

3. Why does this matter outside Germany?

Germany is Europe's biggest economy and has plenty of financial muscle, but it is Merkel's expertise in international diplomacy that might be missed the most.

Steering the EU: French President Emmanuel Macron is seeking to fill the vacuum that Merkel is leaving behind, and her successor will need to ensure the Franco-German alliance continues to function smoothly. They will also need to confront disputes over democratic standards in Poland and Hungary.

Managing relations with Russia and China: Germany has kept diplomatic channels open to Moscow and Beijing when allies such as the US and UK have been more confrontational. The new chancellor will need to help the EU forge a strategy to check the expansion of Chinese interests, insist on fair competition and deal with Russia's antagonism.

Strengthening NATO: Macron said the military alliance was succumbing to "brain death" in 2019, and Germany has a pivotal role in giving it direction and making sure it is funded. Merkel's bloc is committed to the alliance and the goal to spend 2 percent of output on defence. The Greens seek an overhaul, saying NATO lacks strategic perspective, while the SPD, the Greens and the anti-capitalist Left party all reject the spending target.

4. How important is climate change?

With the EU seeking to build momentum behind its Green Deal -- a sweeping economic transformation of the 27-nation bloc -- the elements are there for a shift in Germany's energy infrastructure and the industrial model that it powers. Climate policy -- touching on the country's planned exit from coal and nuclear power, its drive for cleaner vehicles and more renewables -- could lead to tension between the Greens and any coalition partners.

5. How key is immigration?

Merkel's decision not to close the border to hundreds of thousands of refugees in 2015 and 2016 led to her bloc slumping in the 2017 election. The anti-immigration AfD garnered 12.6 percent of the vote, making it the first far-right party since 1953 to win seats in the lower house or Bundestag. Since then, the pandemic has pushed immigration down the agenda, but the AfD is seeking to use the Afghanistan crisis to highlight its nationalist policies.

6. What are the coalition options?

If front-runner Scholz is to become chancellor at the head of a new coalition, he will likely need to strike a deal with the Greens and the business-friendly Free Democrats. Another possibility, though unlikely, would be a red-red-green alliance with the Left party replacing the FDP. The SPD joined with Merkel in a "grand coalition" for 12 of her 16 years in power and the two sides have all but ruled out a repeat of that this time.

Iain Rogers is the Editor for Germany/Western Europe at Bloomberg in Berlin.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.