What happens now that neither major party has a parliamentary majority?
The result leaves both big German parties with almost the same number of seats in parliament, and it may not be clear for weeks which of them will be able to form a government or who will be Chancellor. The process has been handed over to the party chiefs, who are right now in the back rooms of Berlin exploring possible coalitions with smaller parties to create a legislative majority. (The papers are filled with talk of a "traffic light coalition" or a "Jamaican coalition" in reference to the red, yellow and green of the Social Democrats, Christian Democrats and Greens respectively.) Merkel may still be Chancellor but she would have to rule in concert either with her rivals Schroeder’s party or with the Greens, a party whose ecological and social programs place it on the opposite end of Germany's political spectrum.
Chancellor Schroeder's own plans are less clear. Last night, he insisted he is ready to lead Germany for another four years, but to do so he would probably have to form a coalition with the smaller, free-market oriented Free Democratic Party, and they are not likely to accept the idea. The more likely scenario is for the Social Democrats and Christian Democrats, the two biggest parties, to share power in a 'grand coalition,' although either Merkel or Schroeder would have to step down first.
What impact will this have on Germany policy?
The result is bad for business and is likely to slow down much needed economic reforms. Germany is facing nearly 12% unemployment and a yawning budget deficit made worse by the costs of reunifying East and West Germany 15 years ago; Merkel had promised to structural changes to the economy, including tax reform and changes to the rules for hiring and firing that would have addressed those problems.
But a coalition government that included either the Greens or the Social Democrats would slow down those reforms , probably further discouraging foreign investment and sending more money into eastern Europe, where tax policies are more plainly pro-business . The German stock market fell on news of the election result.
Foreign policy is also in doubt. If Merkel is Chancellor the country would likely patch up relations with the United States which were badly strained over the Iraq war. Merkel was against the war, too, but said Schroeder should have been more diplomatic in his opposition. On the other hand, Merkel opposes Turkey joining the European Union which Washington favors. If Schroeder remains Chancellor, Germany will retain warm times with both Vladimir Putin's Russia and France .
What does the election say about Germany 15 years after reunification?
The Wall may be down but stark divisions remain between rich and poor, entrepreneurs and unemployed, and West and East. West Germany, for example, voted clearly for Merkel. If the Berlin Wall were still standing, West Germany would have a right-wing government today. The old East, meanwhile, voted for both Schroeder and, in a surpise development, for a new party called the Left Party, with roots in East Germany’s communist party whose economic platform is on the extreme left of the political spectrum.
The Left Party got 25% of the vote in the East and 9% nationwide, the largest showing for any far-left party in Germany's post-war history. This underscores how a segment of the population, especially those living in high unemployment areas, still see a bigger state and strong social programs as a way forward.The Left Party focused on improving conditions for workers and promising higher wages, rather than on creating the conditions for companies to actually hire those workers.
Nationwide, support for the so called German model of an economy that promises its workers good slaries and generous support is still higher than support for small government and agressive free market reforms. That in the end may be why Merkel failed to get the majority she was after.