Polls in Germany point to Angela Merkel's re-election as German chancellor in a general election in less than a week's time, but speculation is mounting over which party could join her conservative Christian Democrats to form a coalition government.
If re-elected for a fourth term, Merkel's choice of partner will quickly become the main focus as its influence on German governmental policy could have far-reaching consequences for the country and wider region.
A poll released by the Bild am Sonntag newspaper on Sunday showed Merkel's Christian Democratic Union (CDU) and its sister party, the Christian Social Union (CSU), were ahead of its nearest rival with 36 percent of the vote. The Social Democratic party (SPD), meanwhile, was seen with 22 percent of the vote. The poll, carried out by Emnid, showed the far-right anti-immigration AfD party in third place with 11 percent of the vote, followed by the far-left Linke party with 10 percent. The market-friendly Free Democrats (FDP) had 9 percent of the vote, followed by the Green party with 8 percent.
"Whichever way the cookie crumbles next Sunday, Merkel will remain chancellor, and Wolfgang Schaeuble will remain as finance minister," Erik F. Nielsen, global chief economist and head of economics and fixed income/currency, commodity and asset allocation research at Unicredit Bank, said in a note on Sunday.
"(But) it remains a bit unclear whether CDU/CSU will team up with just the FDP in a new coalition, or whether they'll need (or want) the Greens as well in a so-called Jamaica coalition. The smart money is on a CDU/CSU-FDP coalition even if they have a majority of just one, but my gut feeling is that Merkel would quite like the Greens involved as well."
mean that it is normal for parties to enter grand coalitions in order to govern.
In the last general election in 2013, Merkel's conservatives formed a grand coalition with the SPD as its junior partner but the party's leader, Martin Schulz, has ruled out another partnership unless certain conditions are met. As such, some political analysts are not ruling out an alliance between Merkel's conservatives, the pro-business FDP party and the Green party in a so-called "Jamaica coalition," a name referring to the traditional colors of the parties involved.
However, the FDP's leader, Christian Lindner, told CNBC on Saturday that any governing partnership with Merkel was not a done deal.
"It is still completely open, whether this will actually happen," he said. "Whether the voters will enable (us) to form such a coalition, and whether a contract can be reached between the two parties in which we can anchor our convictions and our fundamental principles and another party, theirs. "
"This is completely open. If in doubt, the FDP will go in the opposition, which in our parliamentary system also has an important role because you can accomplish good results by pushing the government," he added.
While the FDP is a pro-European party which advocates free trade and investment, it opposes greater economic integration in terms of a European budget, as advocated by French President Emmanuel Macron. Lindner also criticized Merkel's recent liberal immigration policy during the European migrant crisis, another factor that could cause difficulties in any potential negotiations.
Lindner told CNBC that proposals for a euro zone budget were "unimaginable" for the FDP, saying that it would amount to German taxpayers funding other euro zone countries. "Such a form of financial compensation would not make Europe stronger, but, on the contrary, would increase the centrifugal forces," he warned.
While Merkel might be expected to have an easy passage back into the leadership role following the election, coalition negotiations are expected to be a fraught business according to analysts who predict they will take between many months to conclude. Nielsen at UniCredit believes that, whatever Merkel's partnership preferences, post-election coalition negotiations could take up to three months to be completed. He also alluded to potential rifts between Merkel and the FDP's Lindner.
"It is well known that Merkel and FDP leader Christian Lindner have a rather strained relationship. Lindner was ruthless in his attack on Merkel during the refugee crisis … but Merkel has not forgotten. She also has her own right-wing part of CDU as well as much of CSU to deal with as she'll be heading into negotiations with Macron on a deal on Europe's future," he added in his research note.
Given Merkel's pro-European stance and alliance with Macron in France, Germany's commitment to the region is seen to be secure. Dieter Kempf, president of the Federation of German Industries (BDI), told CNBC on Friday that the new government would soon need to turn its attention towards domestic investment.
"I think we have to point out for the sake of all of us that we need investments for the future, just spending money for social purposes is fine but that won't save the future of our children and grandchildren. So what we do have to do is invest in digitization. We have a lot of segments where only digital solutions will bring us into the future, for example in energy, e-government and education," he said.