The German Elections Can be Crucial for Europe's Future

Unlike the general elections in Spain, Austria, the Netherlands and, most recently, France, the lead-up to the German general election has been a more silent affair, which is perhaps surprising when considering the ramifications of a Populist Party victory in the Deutschland and the likely impact on the German economy and geopolitical stability within the region.

While it may be surprising that the campaign trails have been silent relative to Merkel's peers, Election day is now a matter of days away, with the nation going to the polls on Sunday, 24 ^th September, to vote for the 19 ^th Bundestag, also referred to as the lower house.

After the election, the 19 ^th Bundestag is obligated to have its first sitting within 30-days of Election Day, until which time, members of the 18 ^th Bundestag will remain in office under German law.

Once the 19 ^th Bundestag has convened for its first session, the leading candidate from the Party that gains the most votes traditionally forms a coalition. The President of the Bundestag will present the top candidate from the leading party as a candidate for chancellor, who the new members of the Bundestag will be required to approve in a secret ballot.

The Bundestag has 598 nominal members, each of whom is elected for a 4-year term, with the seats distributed among the states of Germany in proportion to the states' population eligible to vote as Germany being comprised of 16-States. The system is referred to as the mixed-member proportional representation system.

Each elector has 2-votes. The 1 ^st vote, referred to as the "Erststimme", is for the district representatives and is a first-past-the-post-format similar to that of the U.S Election. A voter will select a preferred candidate for district representation within Parliament, with a total of 299 seats up for grabs.

The remaining 299 seats come from a second vote, known as "Zweitstimme", with these votes in favor of a political party as opposed to an individual candidate, which will ultimately dictate the breakdown of political party power within the Bundestag. German States with larger voting populations having greater representation within the Bundestag.

Germany's voting system is known for its complexity and one that allows a voter to elect a candidate from one party in the Erststimme, whilst voting for another party altogether in the Zweitstimme.

On occasion, a party may receive more direct seats through the Erststimme than they may earn according to the party vote. Since each of the candidates elected in the first vote is guaranteed a seat, the party is allowed to keep the additional seats, which is referred to as "overhang" seats. As a result of the overhang, other parties are then also allocated more seats to make up for the overhang, taking the total number of Bundestag seats to beyond the 598. Currently, there are 630 seats in the Bundestag.

There are some thresholds, however, for a party to be permitted to enter into the Bundestag, the main threshold being to win a minimum 5% of the 2 ^nd vote.

In the current 18 ^th Bundestag, there are a total of 5 parties, which include Chancellor Merkel's center-right CDU, the Christian Social Union ( CSU ), the center-left Social Democrats (SPD), the Left Party and the Greens.

Some parties from outside of the current Bundestag to look out for include the Alternative for German (AfD) Party, which just fell short of the 5% in 2013, but has certainly garnered support ahead of the weekend election, the party being the growing right-wing anti-immigrant Populist Party representation in Germany.

At the time of writing, Chancellor Merkel's CDU and sister CSU Party has 37% of the vote and looks set to win a comfortable majority, but with the proportional representation system to consider, the CDU and CSU may not end up with the majority of seats in the 19 ^th Bundestag, which will bring the performance of other parties into consideration during the forming of the next German government coalition.

There have been plenty of issues in Germany this time around, with Merkel and support for the CDU having eased back earlier in the year, sounding the alarm bells on whether the largest economy in the Euro Bloc was about to fall out of the hands of the Establishment.

Immigration has undoubtedly been Merkel's greatest test, with the influx of immigrants driving support for the Alternative for Germany Party, who may actually gain a presence within the 19 ^th Bundestag, while unlikely to become part of any coalition or have a material influence on German politics over the next 4-years.

Security is the other issue that has tested support for Chancellor Merkel, as the more than one million migrants from the Middle East and Africa arriving in Germany over the last 2-years coincided with a number of terror attacks carried out by migrants.

Merkel's dwindling support earlier in the year had also seen the SDP narrow the gap to just a point or two in the polls in late March, but to the relief of many, the prospects of Merkel making it through to a 4 ^th term look far better today.

Merkel's lead is in fact so dominant that few are concerned with the speculation of a loss and more focused on the party with whom Merkel will form her next government.

Last week's Merkel - Schulz clash over Turkey and refugee policies largely affirms Merkel's view that there are no natural coalitions to speak of, with each party now fighting for themselves. The clash does not detract from a possible coalition, but in Merkel's favor, the deteriorating support for Schulz may begin into question Schulz's position as the leader of the SDP, which could be the best possible outcome for Merkel and a coalition with the SDP.

Based on the latest polls and party policies, the most likely coalition will be the CDU/CSU (39%) and SDP (23%), which is the coalition of today, with other possible combinations including the CDU/CSU with the FDP (10%) and Green Party (8%).

An SDP coalition with Linke (10%) and the Greens (8%) is one of two possible scenarios that could bring an end to Merkel's leadership, the only other option being an SDP, GDP, and Green Party coalition.

German Election: Why is it so important?

There's a lot at stake with this weekend's election and, while the markets have moved along relatively stress-free to the possibility of a shock result, it's certainly worth highlighting how important a Merkel led coalition government will be, not only for Germany but also for Europe.

With the UK in the process of stepping out of the EU, Germany has a strong part to play in the international arena, not just on foreign policy, but also global security and never more so following a string of terrorist attacks across Europe and with the North Korea threat continuing to test world peace as we know it today.

The arrival of President Trump in office has certainly raised awareness of NATO in particular, which Germany joined back in 1955, with the current government continuing to see military allegiance as an integral part of regional and global security.

Rocking the political boat in Europe ahead of the elections in Italy would certainly raise concerns about whether Italy would follow suit, not to mention question the positive economic outlook, the continued economic recovery within the Eurozone as much to do with subsiding geo-political risk as the improving global economic outlook.

The Establishment had certainly dodged a few bullets with the elections in Austria, the Netherlands and France going their way and as things stand, Europe's economic powerhouse also looks set to deliver.

In the past we have heard plenty of debate on the possible impact of Germany leaving the EU, something that could become plausible should the AfD lead a coalition, however unlikely today.

One can only speculate on currency appreciation in an EU - Exit event, which would not only cripple the EUR , but would leave the German economy in tatters, with a return to the Deutschmark likely to be at significant cost to manufacturers who have enjoyed being under the wing of the soft EUR and the centralized monetary policy system. European leaders will no doubt be keeping an eye on the polls, as after all, it wouldn't be the first time that they were inaccurate, but with such a commanding lead, the markets will certainly be more unprepared for a shock result than for any other election result over the last 12-months.

Could we see the creation of a 2-tier system in Europe, in an attempt to keep Germany within the EU-fraternity? All things are possible and whilst improbable, it would be unlikely that the establishment would handle an attempt by Germany to leave the EU in a similar fashion to that of Britain.

Can the right wing AFD party take the Lead?

There's no denying the fact that there has been a rise in support for Populist Parties across Europe and in the run-up to Sunday's election in Germany, the AfD Party has managed to find rising support off the back of a campaign focused on immigration and Islam.

Leading AfD candidate Alexander Gauland was particularly vocal when he argued that Muslim's political doctrine is not compatible with a free country and has no place in Germany.

Unsurprisingly, with such a view, the AfD also wants to place a ban on minarets and public calls to prayer, and headscarves for teachers and students and that's before shutting down the borders and enforcing an orderly removal of migrants.

The strong talk has taken the AfD from 8-10% to 10-12% according to the latest polls, who are set to be the first far-right party to enter the Bundestag in more than 50-years.

Based on the current polls, the AfD may well become the 3 ^rd largest party in this weekend's election, but with the AfD having been compared with the Nazis, other mainstream parties have voiced their refusal to sit next to the AfD in the Bundestag, let alone work with them.

Sensitivities to the World War II remain in Germany and Garland's proclamation that Germany should be proud of its veterans of two world wars is unlikely to gain the support of an entire nation, or even a majority, with the AfD almost assured of being outcasts in the 19 ^th Bundestag.

For now, the EUR has stood its ground, finding comfort in the polls, while all will be revealed on Sunday…

This article was originally posted on FX Empire