Schroeder vows to stay as Germany enters limbo

By Noah Barkin

BERLIN (Reuters) – German Chancellor Gerhard Schroeder
vowed not to give up his post without a fight after his party
was pipped by Angela Merkel’s conservatives in a tight
election, setting the stage for weeks of political turmoil.

Energised by a vote that put them just three parliamentary
seats shy of Merkel’s conservatives despite forecasts of a
blow-out, Schroeder’s Social Democrats said they were ready to
talk with everyone on forming a new government.

Merkel echoed the line, telling reporters: “We have the
mandate to form a government. We are clearly the strongest
party.”

But the SPD had lost none of its election-night bombast on
Monday, insisting that no coalition was possible without
Schroeder at the top — akin to calling for the conservatives
to topple Merkel, whom he had publicly taunted on Sunday night.

“It is clear that Germans do not want Mrs Merkel as their
chancellor,” SPD chief Franz Muentefering told a news briefing.

The election left both main parties too weak to secure a
majority with their natural coalition partners — Merkel with
the liberal Free Democrats who share her radical economic
reform goals; and Schroeder with the environmentalist Greens
who have ruled with him for seven years.

Even after a bitter campaign in which Schroeder painted
Merkel as a cold radical bent on dismantling the welfare state
and the conservatives labeled him a liar, many analysts believe
a “grand coalition” between the two largest parties is the most
likely outcome to Sunday’s debacle.

But with Merkel and Schroeder both claiming a mandate to
rule and personal hostilities between the two leaders at a high
point, an agreement between them looks far off — and the
prospect of more exotic, unforeseen alliances has begun to
loom.

Roland Koch, conservative leader of the state of Hesse,
said Schroeder’s attacks would fail to divide the CDU/CSU from
seeking to form a government with the liberals.

A vote to reappoint Merkel head of the CDU/CSU
parliamentary group on Tuesday would demonstrate the
conservatives remained fully behind their candidate, he told
ZDF television.

“The Chancellor is seeking, in my view out of an
unbelievable mixture of arrogance and overconfidence, to claim
he won the election. But the truth is both camps didn’t achieve
their goals,” Koch said.

BLOW TO REFORMS

The unprecedented uncertainty weighed heavily on financial
markets, which had hoped for a clear mandate for Merkel’s
Christian Democrats (CDU), their sister Christian Social Union
(CSU) and the FDP. They had vowed cuts in payroll costs, easing
of firing rules and a simplification of the tax system.

The euro currency slumped to a 7-week low against the
dollar on Monday, while German stocks shed 1.2 percent,
underperforming shares across Europe.

“The stalemate that emerged in the election is of course
the worst result that you could have wished for, the worst for
the interests of Germany and for Europe,” European Central Bank
Governing Council member Klaus Liebscher, who heads Austria’s
central bank, told reporters in Vienna.

Bank of America economist Holger Schmieding predicted the
pace of reform would slow regardless of what government
eventually emerged.

The parties will try to agree a majority government by
October 18, when the new parliament must meet.

The weeks leading up to that date will be characterised by
grandstanding and hard-nosed politics, as the SPD, CDU/CSU and
their potential partners, the FDP and Greens, manoeuvre.

The stalemate prompted talk of coalitions that have never
been seen before in Germany. The only plausible alternatives to
a grand coalition involve either the CDU/CSU or the SPD
managing to draw both the leftist-environmentalist Greens and
the free-market FDP in from opposite ends of the spectrum.

SPD officials made clear the party would push hard to
convince the FDP to join with them and the Greens, a
possibility FDP officials rejected.

“I’m pretty sure that in the next days there will be talks
taking place that are being dismissed today,” SPD board member
Kurt Beck told ZDF. Beck is leader of Rhineland-Palatinate, a
state he governs in a coalition with the FDP.

FOREIGN REACTION MIXED

The long-term impact of the election on German foreign
policy is unclear, although Turkey revelled on Monday in
Merkel’s failure to secure a clear victory.

Unlike Schroeder, Merkel opposes Turkish entry into the
European Union, and Turkey had feared a clear win for her would
have doomed its long-standing bid to join the 25-nation bloc

“It was an auspicious result for the EU process,” Turkish
Prime Minister Tayyip Erdogan said.

In other countries, the reaction was less cheerful.

In an editorial headlined “The worst result,” Britain’s
Times newspaper said the uncertain outcome was “probably the
worst possible for the country and for the cause of reform.”

Italy’s newspaper Il Messaggero wrote: “If this is a
foretaste of a future trend in Europe, there is nothing to be
cheerful about.”