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Merkel could be ready to lead a minority German government, minister says

  • Coalition talks between Merkel, the liberal party and the Greens collapsed, throwing the spotlight onto the the center-left Social Democrats (SPD)
  • The SPD has previously governed with Merkel's party in a "grand coalition" but seemingly wanted to stay in opposition and rebuild after a bruising election result
  • Despite the political impasse since the general election in September, the German economy seems to be totally isolated from it

Chancellor Angel Merkel could lead a minority government if current coalition talks with the German Socialist party collapse, according to the country's deputy finance minister.

"If the Social Democrats aren't willing to actually compromise with us on the necessary issues like the question of how we remain a strong economic power … Then there can't be a grand coalition," Jens Spahn, the deputy finance minister, told CNBC Wednesday.

"Still, we, as Christian Democrats, want to govern even in a minority government, that will be new for Germany, but it's time for new things anyway," he added. Merkel herself has previously hinted that fresh elections would be preferable over governing alone.

Merkel's center-right Christian Democratic Union (CDU) and its Bavarian sister-party the Christian Social Union (CSU) won 33 percent of the vote back in September's elections, their worst result since 1949. Coalition talks between Merkel, the liberal party and the Greens collapsed, throwing the spotlight onto the the center-left Social Democrats (SPD). The SPD has previously governed with Merkel's party in a "grand coalition" but seemingly wanted to stay in opposition and rebuild after a bruising election result.

Chancellor of Germany Angela Merkel attends a press conference in the Chancellery in Berlin, Germany on July 05, 2017.
Maurizio Gambarini | Anadolu Agency | Getty Images
Chancellor of Germany Angela Merkel attends a press conference in the Chancellery in Berlin, Germany on July 05, 2017.

Nonetheless, the SPD is holding a three-day congress this week and will ask members' permission to start coalition talks with the Conservatives. A poll published by the German Spiegel newspaper showed that only 28 percent of SPD voters favoured another grand coalition, though 57 percent of them argued leader Martin Schulz should support a minority government led by Merkel.

Though Schulz has said at the start of his campaign that he would not join a coalition with Merkel, he has been under pressure from the German president to find a compromise with the Conservatives and avoid the need for fresh elections.

"One thing is for sure, she, Angel Merkel will lead the next government, no matter if it's a grand coalition again or perhaps a minority government," Spahn told CNBC.

He believes that coalition talks with the Socialists could start next week, if the party members decide that direction, but these won't be finalized until the end of February or even the start of March.

"I hope we can start next week, with small talks with some party leaders, (but) then there's Christmas," he said, "so I guess in January we will have the biggest part of the talks of the negotiations, then the SPD will want to ask their members, so that needs two to three weeks, so I think it will be end of February or even March before we know that there is a new coalition for Germany."

Despite the political impasse since the general election in September, the German economy seems to be totally isolated from it, according to Carsten Brzeski, chief economist at ING. Data released on Thursday showed industrial production dropping 1.4 percent month-on-month in October, after falling 0.9 percent in the previous month. On a yearly basis, industrial production was still up by 2.7 percent, from 4.2 percent in September.

"In our view, and as strange as it might sound, the October drop is simply the result of public holidays and long weekends. All soft and hard indicators actually point to a strong surge in industrial production in November," Brzeski said in a note.

"The irony of today's drop in industrial production is that it probably reflects the strength and not the weakness of the German economy. Apparently it is going so well that people and companies can simply afford to take some time off," he added.