Government building runs into difficulties More than six weeks after the federal elections, formal coalition negotiations have yet to even commence. Instead, negotiators remain mired in exploratory talks aimed at finding compromises on key political cornerstones of a potential coalition. Over the past two weeks of talks, serious deadlocks became manifest regarding immigration, energy and traffic/transportation policy, Eurozone governance, agriculture, trade, as well as fiscal policy (balanced budgets vs. tax relief). In most of the twelve working groups there are long lists of drawn-out controversial issues with rather vague common ground.
Leading coalition negotiators now estimate the probability of a successful conclusion at just 50%. While this may be hyperbole, the risk of a snap election is rising. However, we still expect a “Jamaica” coalition to take office with a 75% chance. Given the recent Lower Saxony election results, and in view of federal polls remaining similar to the September 24th outcome, a snap election would not be in the interest of the “Jamaica” coalition protagonists – offering little prospect for profit while exposing them to large risks. Polls and inner-party movement should be watched with heightened scrutiny now: As long as polls remain stable and parties remain quiescent, we see no need to alter our expectation that the “Jamaica” coalition parties will eventually compromise, even if the agreement is a bad one. In addition to the tedious negotiations that still lay ahead, any agreement reached will also require a lengthy ratification by each party board and/or members. A new government may take as long as January to take office.
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