We’re less than two weeks from December.  That means that the Bundestag, the lower house of Germany’s parliament, has been sitting for about a month, and we’re weeks away from the self-imposed deadline that chancellor Angela Merkel placed on securing a new coalition government.

In case you forgot, Merkel won a handsome victory in the September 22 federal election, when her center-right Christlich Demokratische Union Deutschlands (CDU, Christian Democratic Party) — together with the Christlich-Soziale Union in Bayern (CSU, the Christian Social Union in Bavaria) — won 311 seats in the Bundestag, just five seats short of an absolute majority.  It was the biggest victory for Merkel’s Christian Democrats in nearly two decades, harkening back to the wide margins that former CDU chancellor Helmut Kohl won in 1990 and in 1994 in the afterglow of the relatively successful reunification of West and East Germany.

But while the CDU-CSU savored a sweet victory, their coalition partners between 2009 and 2013, the Freie Demokratische Partei (FDP, Free Democratic Party) failed to win any seats in the Bundestag for the first time since 1945, leaving Merkel with two options — a minority government or a coalition government with more leftist partners.

Though Merkel flirted throughout early October with Die Grünen (the Greens), a tantalizingly novel coalition that would have remade the German political spectrum, the Greens pulled out of talks on October 16.  So for over a month, coalition negotiations have been exclusively among the CDU, the CSU and the center-left Sozialdemokratische Partei Deutschlands (SPD, Social Democratic Party).  Earlier in November, the coalition talks were going so well that CSU leader and Bavarian minister-president Hoorst Seehofer worried that the harmony would subsume the real policy differences between the German right and the German left.

As Merkel quipped earlier this year, Christmas comes sooner than you think, and Merkel, Seehofer and the SPD’s leader, Sigmar Gabriel (pictured above), are under increasing pressure to agree on a coalition agenda — and given that the CDU-CSU’s 311 seats and the SPD’s 192 seats constitute 79.8% of the entire Bundestag, expectations are high that such a wide-ranging coalition will tackle long-term reform both in Germany and in the European Union.  Moreover, any coalition deal agreed among the three parties must also win subsequent confirmation from a vote of 470,000 SPD members in December.

So what’s holding up the deal? 

Taxes and spending

It’s not so difficult to understand the divisions between the CDU-CSU and the SPD.

The CDU promised to cut taxes during the election and the SPD promised to raise taxes, and the CDU has even resisted the SPD’s proposal to close tax loopholes in order to raise more revenue.  Merkel wants an industry-by-industry approach to raising the minimum wage, while the SPD campaigned in favor of an across-the-board minimum wage of  €8.50.  While all parties want to increase public infrastructure spending in Germany, the SPD wants to do so by a larger amount.

Seehofer and the CSU, in particular, are vocally opposed to wide-ranging spending promises that they fear the government won’t be able to fund.  Wolfgang Schäuble, Germany’s finance minister since 2009, is also likely to push back strongly against too much new spending.

But Merkel has indicated there’s room for concessions on a minimum wage, and the CDU is amenable to SPD policies on a financial transactions tax and a quota for women on corporate boards.

Speaking of Schäuble, personnel matters and dividing up ministries could also complicate a coalition deal.  Merkel is keen that Schäuble will continue as finance minister in the new government, though the SPD still has designs on the powerful ministry.  If the Social Democrats prevail, Gabriel or former foreign minister Frank-Walter Steinmeier is likely to succeed Schäuble.  Otherwise, expect the SPD to take six ministries (presumably, Gabriel will become Germany’s next foreign minister), the CDU to take five ministries and the CSU to take three.

CSU-CDU division on Europe

The future of the European Union remains another difficult issue, but the major disagreements are between the CSU, on the one hand, and the CDU and the SPD, on the other hand.  Despite the creation of a slightly euroskeptic party, Alternative für Deutschland (AfD, Alternative for Germany), which did even better in September’s elections than the Free Democrats, the most successful euroskeptic party in Germany has always been the CSU.  Bavaria, relatively wealthy even compared to the rest of Germany, and located in the southern German heartland, has always been cooler to economic and monetary union than the rest of Germany.  Earlier this autumn, CSU leaders actually called for some of the eurozone’s more economically challenged countries to be permitted to exit the currency union:

“The CSU wants member states who will not be in a position in the foreseeable future to fulfill the stability criteria of the Maastricht Treaty to be given the possibility of temporarily leaving the euro zone,” the text states. The CDU and the SPD take a different view from the CSU and no compromise is in sight.

Compared to a number of statements made in the past about the euro crisis by the Bavarian party, this one was actually pretty reserved. Still, the message is clear — the party wants bankrupt nations to leave the common currency. That’s precisely the position the CSU unanimously agreed to at a party conference last year. And it’s certainly not good news for Merkel, who would prefer to do without such potentially burdensome political outbursts on European policy. It’s also a sign that Merkel’s sister party won’t simply go along with policies from the chancellor that tend to be friendly towards the EU.

CSU recalcitrance could complicate Merkel’s plans, mooted late last month, to push for a new EU treaty that would consolidate greater fiscal control in Brussels in exchange for banking union, greater aid and potentially, a mechanism for greater opt-outs to satisfy British prime minister David Cameron, who has promised a referendum on the United Kingdom’s future EU membership after the 2015 British elections.

Future insecurity

Reports that the SPD is inching closer toward future cooperation with Die Linke (the Left Party), the socialist party that formed in 2007 as a merger between the former East German Communists and a group of SPD legislators opposed to the ‘Hartz IV’ labor market reformed that SPD chancellor Gerhard Schröder implemented in the early 2000s.  The Left Party’s roots in the authoritarian Sozialistische Einheitspartei Deutschlands (Socialist Unity Party) that ruled East Germany between 1949 and 1989 made it toxic. 

But the Berlin Wall fell 26 years ago, and the Left Party has moved somewhat into the political mainstream — after the CDU-CSU and the SPD, it’s currently the largest party in the Bundestag, with 64 seats.  So the SPD’s decision to signal a slightly more favorable position to a future coalition with the Left Party was a sly maneuver to let Merkel know that the SPD could, in theory, form a ‘red-red-green’ coalition with the Left Party and the Greens that would have 320 seats and a majority, leaving Merkel’s CDU-CSU in opposition.

While the SPD is unlikely to open talks anytime soon for a broad leftist coalition, it’s put Merkel on notice that the SPD could easily cause Merkel’s government to fall:

Leading CDU members are concerned that the SPD could pick any of the issues that have proven contentious in the current talks — such as same-sex marriage, a gender quota in business or family policy — and use them as an excuse to withdraw from the government during the next four years.

The underlying problem is that SPD leaders are anxious not to repeat the mistakes of their first ‘grand coalition’ with Merkel between 2005 and 2009, when voters seemed to give the Social Democrats none of the credit for steering Germany through the financial crisis relatively unscathed,  and they handed the Social Democrats their worst election result in postwar German history (voters handed SPD chancellor-candidate Peer Steinbrück and his party their second-worst result in September).  Voters also seemed to blame the Social Democrats for working too smoothly with Merkel.  In any event, the Social Democrats have struggled now in two election cycles to draw distinctions with the ideologically amorphous Merkel on nearly every key policy issue.

So while an SPD-led government would send Merkel tumbling from power, there’s a chance the SPD could also end the coalition (for any of the reasons listed above) and force early elections, and the Social Democrats are signaling that they don’t intend to be as docile as they were in the first coalition.  Although Merkel is just two months from the biggest victory of her political career, and polls show that the CDU-CSU still commands a wide lead over the Social Democrats, she would much rather be negotiating a new EU treaty in 2015, not preparing for her fourth consecutive election as CDU leader.