We have four days to go to the Bundestag elections in Germany and the latest polls indicate that it is going to be a cliffhanger.

Background
To be clear, there are five parties participating in this election. On the right we have Angela’s Merkel’s CDU (or Christian Democrats), in the center the liberal FDP – whatever liberal means these days – and on the left the ruling SPD (Schroeder’s party), the Greens, and the new force, the Left Party. The latter is somewhat of a wild card entry, a merger of the former communists that governed East Germany (the PDS which succeeded Honecker’s SED) and some disgruntled ex-SPD folks who considered Schroeder too centrist. The polls are far from conclusive but this appears to be the latest:

CDU 42%

SPD 35%

Green 7%

Left 7%

FDP 6%

Undecided 3%

Germany has a rare mix of the proportional representation and the district system which is explained fully here, but suffice it to say that if the numbers above hold then neither the CDU nor the SPD will have a solid majority in which case the largest party will have to build a coalition.

Coalition Building
In the past the FDP was the ultimate power broker as it supported the SPD governments in the 1970s and early 80s, and after that they ensured that Helmut Kohl could count on a parliamentary majority. But with the scenario painted above they couldn’t. The SPD however would be able to build a leftist coalition together with their current partner The Greens and the Left Party. If anyone thought that anti-Americanism and economic management could get any worse then this is your ultimate nightmare scenario. It’s not entirely likely this will come to fruition as Schroeder would balk at forming a lasting political relationship with some personal rivals who abandoned his own SPD. And even Schroeder knows that a program of leftward reforms would be utterly destructive for Germany’s economy.

The only other alternative then would be a national coalition where the CDU would together with the SPD form a grand coalition, a sort of big national center, everybody happy together in one tent. That possibility has been discarded for now by both parties, but if neither a CDU/FDP coalition nor a SPD/Green/Left Party coalition works then it’s not unthinkable that Merkel and the SPD will have to decide to work together for the time being.

German Conundrum
The German conundrum that we’re looking at right now is two-fold. Firstly, the SPD looks set to get a beating at the polls, but it is Schroeder’s popularity that helps the party sustain at least a bit of momentum, enough to keep Merkel from winning outright. Consider this:

Polls indicate that the charismatic Schröder's personal popularity still tops that of Merkel. But an overwhelming 70% are unhappy with the way Schröder's party is running the nation, and only 21% believe the SPD can restore job growth. Time and again Schröder has announced promising reforms, such as corporate tax cuts or private retirement savings programs, only to see them diluted or killed by leftists in his own party. The promised economic benefits never materialized.

That brings us to part two of the challenge. They like Schroeder but know he can’t reform, but Merkel’s reform somehow inspires a sufficient amount of fear to keep her away from capturing a decisive majority.

Impact of Possible Outcomes
For North Americans it’s hard to conceive of something like a grand coalition and it’s hardly a desirable outcome. Yes, Schroeder would disappear from the scene and Merkel would become the governing Chancellor, but reforms would stall or end up as toothless compromises. An arrangement like this is usually a stay of execution, both parties bide their time and when one party feels the time is ripe to claim a majority at the polls it will force an election by no longer supporting the coalition. For both Germany and the international community it would be an unfortunate outcome as nothing would really get done in Berlin that would deserve the name of proper policymaking. From that perspective this election would be a wasted effort.

Then there’s the hard left option, which if it works would mean turning back the clock on all fronts. Looking beyond its borders, Germany would be isolated not just in terms of the transatlantic relationship, but it would become a somewhat outdated ugly duckling in the European Union as well.

That leaves us with the Merkel option which has left some to argue that she will emerge from the electoral battlefield as Germany’s Margaret Thatcher. Well, her performance so far warrants the Thatcher Lite moniker and the care with which she has treaded to date just underlines the difficulty that goes with initiating drastic reforms in Germany. Germans are no Brits and even with a strong mandate Merkel will need all her guts and wits to turn Germany around. Reviving the relationship with Washington while not an easy assignment, is, compared to the domestic to-do list, a piece of cake.

Whichever way you look at it, if the current projections materialize at the polls this Sunday, Germany will be stuck with either a very unfavorable outcome or a period of uncertainty with the potential of another visit to the ballot box soon.