It’s Showtime for Merkel

Lots of thoughts about the German elections yesterday. Merkel’s “victory” was really a defeat–her Christian Democrats (CDU) had their lowest showing since the party was founded after World War II. They were saved by two facts. One, the Social Democrats (SPD) did even worse, dropping to a mere 23 percent, while two, the business- and CDU-friendly Free Democrats (FDP) surged, to 14.6 percent. Merkel and the FDP will now make beautiful, market-pleasing music together.

Or will they? The FDP will demand a heavy price for its role as junior partner, including a firm commitment on tax reform and reduction. It wants to see stronger right-to-fire laws, weaker union rights, and less regulation on businesses of all stripes. True, the FDP has moderated since its days, in the 1980s, when it proudly called itself the party of the elite. But it is still a business party at heart.

But is the CDU? Is Merkel? People have long suspected that Merkel, like New York’s Michael Bloomberg, is a liberal stuck in a conservative party. If so, her previous coalition with the SPD was a convenient screen to hide behind, as it allowed her to blame the government’s left-leaning stance on her left-leaning partners. Now we get to see precisely how pro-business she really is.