Germany, Coalitions and Reforms.

From: TaxLatam

Germany is yet in the news as the German parties try to address some kind of multicoloured coalition. Parliamentarism offers that kind of stuff: results in which there is no a clear winner and a set of temptative coalitions to rule a country in one direction or another.

Fortunately for the traditional Volksparteien parties, SPD and CDU, the hecatomb in the polls was minimised because no populist neither nationalist party grew at the expenses of the traditional actors, unlike Austria, Denmark or Switzerland. The German past has much to do with that.

Politicians at the stakes
Politicians and parties have two kind of preferences, staying in office and executing their preferred policies, and not necessarily in that order. All of them can agree in the first point, but obviously they will have to accomodate the second point in order to present a reforming agenda for an economy that languishes. And this is where the discussion grows.

The media is asking if German politicians would be able to get an agreement and conform a new government. They need some figure, a chancellor, apart from the soup of acronyms, to cover their front page and to keep the attention of the audience.

Unfortunately, they are not focussing the attention in the real dilemma: a government will be formed for sure, but his ability to reform is not granted. I found, in a recent paper, that coalitions with parties of different ideologies (at the left-right from the median voter) are unable to impulse great reforms. Only parties in the same side of the ideological spectrum were able to impulse big reforms in the 110 coalition cases that I found in the last three decades in Europe.

Any kind of coalition formed by three or more parties from different segments of the Left and the Right is condemning Germany to the Status Quo and failed reforms that won't fulfill the needs of more than five million of unemployed voters and sluggish wages. In the next five years, the competition from China and other emerging economies will be ferocius, and the next call to the ballot-box can be more dramatic. A Grand Coalition will calm now the markets, but it's a ticket for an express to the Hell. Both big parties will be accused of the blockade in the reforms.

A red-red-green coalition will entail radical reforms for sure. A black-yellow + a variant ally (SPD, Green) will likely do the same. But a big mix is a passport for more stagnation in Central Europe. Theory and evidence (1) (2) (3) is clear about that.