 mentioning my career, Catherine. I have a disreputable nephew who once referred to my uncle the spy because I'd always been in places where things seemed to be happening, but I nearly sued him for it. And my answer to that was the spies are the ones who don't actually write anything very much, but I have to appear in print. Anyway, when I prepare a talk like this, I always probably spend an entire night putting my thoughts in order and put too many thoughts down. So I'm going to have to try and keep this a little bit tighter than I thought and we can come to things perhaps in question and answer that I might have skimmed over. Nonetheless, I wanted to start with the election and I wanted to start with what to me was, if you like the most sort of gobsmacking moment about the election. And it was late on one Monday evening when I left my office, which is just on the banks of the spray looking across at the Bundestag, and came out the door and I looked across down the river towards the Halkbahnhof and there was this amazing poster that had just gone up 80 meters long by 20 meters high. And all it showed were Merkel's hands made up of all these tiny little pictures of other people's hands, Merkel's hands in this absolutely classic position, thumbs and fingers together in a sort of little diamond, the ultimate image of reassurance, but also brilliant advertising, totally recognised. You didn't hesitate for a moment, you knew there were Merkel's hands and this one little thing in the corner just said, CDU, nothing else. Around the corner there was another poster that said Germany's future in safe hands. And it just was absolutely what the election became all about. It was a very calculated risk by the planners of the Christian Democratic Union to fight on her personality and not on policies because German elections are not fought on personality, they are fought on policies, it's not a personality driven culture. And it worked almost because there's no doubt that the huge popularity of Angela Merkel was what carried her party to almost an absolute majority. She's far more popular than Helmut Kohl ever was. His popularity was always about 16 or 18 percent. He wasn't a popular Chancellor, he had a very powerful party. She is a very popular Chancellor and her party is actually not that well organised at the moment. But she ended up still five seats short of a majority, of an absolute majority. And that means she needs a coalition partner. So you have a peculiar outcome. The actual voters voted by a narrow majority for the right. But the majority in the Bundestag is by a narrow margin to the left. And that's of course because of the failure of the Liberal Free Democrats and also the Eurosceptic Alternative of a few Dutch land to make the five percent mark. So all their votes would have been essentially more right than left and that would have put the balance of power on the right. But what we're going to get out of these coalition negotiations is actually a grand coalition that is probably pretty close to the centre but nonetheless more to the left than the victorious party in the elections. Just quickly to exclude the two other possibilities. Why with only five seats short of an absolute majority did Angela Merkel not try to govern with a minority parliament instead of having these interminable coalition negotiations before she can form a government. She is absolutely adamant that she needs a stable government and she needs a stable government for one reason above all others and that's the Eurozone crisis. She's still worried enough about where Europe is going that to have had a government that was always having to beg, borrow or steal votes from the opposition would simply not work. And the second potential outcome which I think still has to be clearly excluded is that that centre left majority in the Bundestag of the SPD, the Greens and the far left linker party is not going to happen. And it's not going to happen because the SPD is simply not prepared to try and forge a government with the linker because they mistrust them on Europe and they mistrust them on NATO. They say the left is not reliable on either of those things. We cannot be a responsible international government if we have the left as our partners in power. And I think that is, that goes quite deep. There are many other issues we were talking about them just beforehand at lunch about why the SPD mistrust the linker. Partly there's a lot of bad blood personally with the far left in the west of Germany. But nonetheless at the end of the day they wouldn't have been fair partners. So what do we have? Only two options. A grand coalition again. Merkel rather enjoyed it last time. She was between 2005 and 2009 a grand coalition. Or a black green coalition. Lots of people want a CDU green coalition to happen in Germany. A significant minority in both parties. Journalists want it to happen because it would be fun. This has never happened before. And political scientists want it to happen for very much the same sort of reason. The untried experiment. But I don't think it will happen until it's happened in one of the big Bundesländer. And then when they've shown that it can work in a lump like North Rhine Westphalia or Baden-Württemberg or Saxony where a good friend of mine is plotting actively to have that as the outcome from the next election. It's not going to happen in Berlin. But you cannot totally exclude it if and what I'm coming to these great negotiations for a grand coalition with the SPD fail for one reason or another. And the only really likely reason they will fail I think is not the content. It's the referendum that has got to happen in the SPD after the negotiations have been concluded to see whether the grassroots will vote for it. And that is a risk. If that went wrong then Merkel still has a fallback position of a possible coalition with the Greens. As I said I think a grand coalition is her first choice. She actually liked it last time and she's on the left of her party. She is clearly very pragmatic, very middle of the ground and as we saw throughout the election campaign and beforehand she's brilliant at stealing the ideas of the opposition when they look like being popular. Minimum wage, I'll have a bit of that. Rent controls, yeah we can do that. Topping up pensions, we're fine on that too. And to the discomfort and horror of many of her more conservative supporters she kept grabbing social democrat policies until she had this clearly occupying right across the middle ground of German politics. Now the grand coalition talks have as you will have been watching and so have I although I've taken my outfit for the last few days been dragging on for quite a long time. There are no huge issues that have blown up of great difficulty between them but nonetheless they're not meant to look easy. Now particularly that's particularly important for the social democrats they're going to have to turn around and go back to their grassroots members and say we got what we needed we got a few really good social democrat policies onto the agenda so they've got to show that it's they fought for their core policies to persuade their own party faithful. But at the end of the day a grand coalition in Germany is going to be what? Firmly pro-European. If anything in recent times the social democrats have been more pro-European than the Christian democrats and certainly than the free democrats ever were. They're going to be very clearly dedicated towards this Schuldenbremse the debt break the balanced budget that they've written into the constitution and forced everybody else to do in the eurozone. So a balanced budget is a fundamental part of that. They're going to be socially sympathetic there's a big social wing in the cdu and in the CSU. But none of it is going to be very dramatically different to the middle of the road German government policy that we've really had for the last eight years. It's going to be a Merkel government with a few social democratic knobs on it. Now if the social democrats do vote for it in their party referendum and they've got a deal they vote in December which is what Sigmar Gabriel their leader wants. He wants to be able to have time to buy a presence for the Christmas he says we all need that so we're going to have a government by Christmas. Now I'll come back to that I wanted to just touch and this is where I'm going to have to cut back a bit I think but touch a little bit about the color and fun of the campaign because it tells us quite a lot about the German political process that's behind these negotiations. One of the very difficult things for a journalist covering this campaign was that there was enormous international interest in what was happening but it was actually a desperately dull and predictable campaign. The opinion polls were absolutely flatlining for Merkel up here for the SPD a good 13, 14, 15 points behind and the only shifts and the only interest was really what was happening down the bottom. Would the liberals the free democrats get the 5% and therefore give Merkel a center-right majority or would they fall below it and force her probably to do exactly what's happened to grand coalition and the other key question an interesting one was what was going to happen to the Eurosceptics this alternative of your Deutschland and I'll come back to that but the CDU plan was very clear one of my friends described it to me rather nicely as they wanted a Teletubbies campaign they wanted it short, sweet and soporific and then Merkel's personality would decide the outcome and it's basically what they got the hands summed it all up you got the woman you knew there was no mood for change in Germany they were entirely happy with the way that Chancellor Merkel has been in charge she's reassuring she's calm she's measured she's utterly sensible she has no great visions she's very steady she's absolutely infuriating to her opponents and to excitable hacks because she makes the same bloody speech all the time same figures same lessons same message but of course her audience is always different but we the journalists are always going to the same speech endlessly we couldn't find a new story in it German elections are not supposed to be exciting it's all rather well choreographed every party draws up big manifesto which they know they're going to have to tear up when they go into the coalition negotiations and actually decide what they can agree on everybody commits themselves to rather nice generalities better schools housing a fair society care for the elderly all the obvious things one or two catchy headlines what was very noticeable in the campaign was the cdu's manifesto was almost totally bland about the only clear thing in it was no tax rises whereas the spd and the greens actually stuck their necks out went for tax rises on higher income earners and i think it blew up in their faces like other things did the fascinating thing was why would an opposition party go into a german election campaign preaching tax rises i mean surely this is poison and the reason in germany is no a balanced budget is more important than actually where the tax rises are going to go up everybody went into this campaign saying we're not going to blow the budget and it's one fundamental lesson i think you've got to come away from this with they're not going to blow the balance budget so i i i think i i better shoot on because i need to come to the coalition negotiations but just just over the course of the campaign of course the spd just never got it right i mean with perstein book they had a a very interesting highly intelligent candidate but somebody said before the elections okay you've got two very intelligent candidates for chancellor and only one of them is nice who are you going to vote for he never managed to be nice he's got a rather abrasive line he made some very foolish mistakes early on he he said that i he thought the chancellor was actually paid uh too little uh he said rather a nice one for an irish audience he said i would never pay uh i would never buy a bottle of pinot grigio for less than five euros when did you last see a bottle of pinot grigio for five euros the average price of bottle of wine in germany i'd believe is two ninety nine um so it didn't go down very well anyway um very frustrating campaign for the spd they just never could get out of the 25 26 percent level and there was Merkel up on 39 40 41 um the greens had an extraordinary meltdown we all expected the greens to end up with about 15 percent they'd had this surge in support over the Fukushima nuclear disaster and then suddenly at the end of the campaign they just plummeted why one i think the tax question they looked like they were going to tax people who actually among their own supporters um and there's another thing about taxes that i learned many years ago in politics if you say you're going to tax only the well to do the worrying thing is that people hope that even if they're not well to do their children may be well to do so it won't help them very much um secondly i think they were too social democratic by allowing themselves totally with the spd and running on a rather social democratic platform they ignored the real reason people vote for them which is the environment all about the environment and finally uh they they had well two things went wrong somebody came out with this idea that public canteens should all have one vegetables only day every week and that was brilliantly turned around including by Merkel we don't tell people when they can eat their worst uh and she just made the greens appear to be the regulators the interferers the the nannies uh and and that paid against them and then there was a pedophile scandal a very old pedophile scandal that came out at the very end of the campaign which said that actually the greens way back in the early 80s had been in favor or defended pedophiles and that and their vote literally crumbled in those last days and finally that the liberals fought this dreadful campaign where the leadership was all over the place they had no policies they were completely unclear where they were going all they were doing was begging that the second vote the vote for party as opposed to person please christian democrats give your second vote to us and when Merkel said no i think it was curtains for them i'm going to come back to the alternative of your deutschland because i think at the end of the day that's one of the open questions that's still out there this little eurosceptic party now i was absolutely clear i'd covered two other german elections before i'd covered the early 90s when there was an anti-euro pro-deutschmark party and so on and nobody'd ever got a breakthrough on that sort of platform and suddenly they were pretty close and they're going to get into the european parliament because they're the the the threshold is only three percent so it's going to be very different very interesting to see whether they've got any longer term traction but i'm going to come back to them anyway it's Merkel who won it although somewhat by default because the others all actually had rather useless campaigns now i just it's what is it about Merkel's message that works in germany it's a very clever ambiguous message i am pro-european that is absolutely essential for any lead german politician but i'm defending the national interest and protecting the german taxpayer absolutely in tune with the thinking in germany today and it's this ambiguity that we all find perhaps so difficult in interpreting quite where german policy and the balance of german policy is on europe um i won't waste the taxpayers cash i'm the swabian housewife and the other thing about Merkel that you should never forget is that she has a wonderful sense of humor at these all these very staged rallies that you have in german election campaigns they usually start off with some local tv personality who interviews the big speaker in toe-curlingly cringing form about why you're so very wonderful and tell us about your favorite pet or whatever and i remember it was in disseldorf and Merkel arrives and she'd done about three meetings already that day she did a huge number of meetings to to back up the hands and she arrives and this moderates says oh for mechal you've been working so hard and yet you always look so cool how do you do it and she looked very straight at this woman she said you know i have been making a significant contribution to the german makeup industry she she just has that anyway where are we going Merkel has laid out four big challenges for the next government and i think this sums up both the way she's handling the negotiations and the way she sees things one two and three probably but one stabilizing the euro stabilizing the euro zone it is absolutely the top priority two cutting the cost of the energy transition the energy transformation they're going through in germany making it manageable and making sure that it doesn't ruin german competitiveness the thing they're so proud of because the switch out of nuclear and to renewables is looking at this moment very expensive german energy costs today are already 60 above us energy costs they've got to do something which is not going to be going back to nuclear energy it's going to be a very difficult challenge and it's a core one in these negotiations the third thing interesting she throws into the mix is federal reform why federal reform well it's actually all about helping the lender to also balance their budgets which they've got to do by 2020 and guess who rules most of the lender the spd so this is Merkel's way of actually bringing those spd state premiers into the whole framework of a grand coalition and finally Merkel's constant long-term theme managing the demographic challenge managing the aging population maintaining german competitiveness with an increase in the old population and that of course is a very nice umbrella if you like for some more socially oriented policies and ones that might appeal to the spd doing more to enable women to work balance career and home doing more for old age pensioners and old age care and so on doing being actually a little more liberal a little more open perhaps on the immigration front an interesting one it's proving to be quite a difficult issue within the negotiations whether they will actually expand and extend the double citizenship which at the moment if you're a turkish immigrant in germany you've got to decide by the age of 21 whether you're turkish or german nobody else has to decide that the turks do and the spd is pushing very hard because it's now a significant voting part part of the voting population the turkish community that they should have a right to double citizenship for most of their time now what's going to emerge with the spd well on europe it's the thing that i think probably concerns you most concerns me most not too much detail if they can get away with it they don't want to put it all down in the coalition negotiations all very well being able to go to brussel saying we can't do that it was in the coalition negotiations but actually she knows sigmar gabriel knows volfgang schoibler knows that you've got to negotiate in brussel so you don't want to tie yourself down to an utterly predictable position so what's going to happen on banking union they've got to have a deal they're aiming to have a deal in december on banking union well on banking union the spd is probably even more hard line than the cdu is um for example absolutely no taxpayers money should go into bailing out banks there shall be no direct recapitalization from the european stability mechanism that has been a fundamental spd position for months and it's not likely to change very much because it's pretty clam damn close to where volfgang schoibler's been arguing or the common banking resolution fund guess what they've been able to agree on almost exactly what volfgang schoibler's been saying for months so all the rest of the eurozone is actually facing very little change in the german position on banking union euro bonds forget them the spd realized very quickly in the election campaign that michael was onto a winner by saying not in my lifetime i don't think she absolutely means not in my lifetime but she certainly means not in well michael's lifetime she means a political lifetime over a couple of years or so um but the spd did want a debt a debt redemption fund and the cdu csu have had such a hard line against any form of mutualized jointly guaranteed debt that the spd are just going to drop it they're not prepared to die for it in the trenches now as a key question nonetheless about personalities which is going to affect the european a debate undoubtedly because the key negotiator is going to be the finance minister and it's the most important job in the government and will the spd demand the finance ministry and we still don't know um or will volfgang schoibler stay there michael would like volfgang schoibler to stay there he's been very successful for her amazingly as a finance minister he's the second most popular man in the government um and he's a very much unknown quantity he's prickly he's independent he's always thought he would be a better chancellor than franco but nonetheless he's loyal at the end of the day so i suspect that we're still going to have volfgang schoibler's finance minister because the spd has no obvious candidate for the job that is unless sigma gabriel himself who will be the vice chancellor actually decides that even if he doesn't really want the job it's the most powerful job in government short of being chancellor and he has to take it he's going to leave that i think till the very end we're not going to see personalities come into the picture until the very end and one of the reasons is tactical for mr gabriel he's got to go to his party grassroots at the end of the day and sell the program and if he comes to them with a program where actually nobody's paying attention to the details and everybody's paying attention to who's got what job it's going to look as if the party leadership has negotiated the whole deal just so they'll get nice jobs in the cabinet so what he's going to try and do is keep personalities out of it and put policies to the party that they can say oh yes well done you've got a minimum wage for us you've got rent controls for us you've got more spending on schools and kindergarten so that's all to the good we'll vote for it um so i think at the very end of the day uh it's still wide open i would say i'm 55 percent expecting schoibler to stay but there's a very strong lobby in the spd that says even if we haven't got the obvious candidate we must get the job um incidentally volkang schoibler if he didn't get the job and everybody tells me he's very relaxed about it he's 71 years old this will be his last job in any german government he would be perfectly happy to be foreign minister to go to the foreign office and be the great european that he really wants to be and not the brute in a wheelchair who tells everybody else that they've got to obey his rules um and he would actually play then a very interesting role i think in the longer range uh european um uh the european reform process treaty change perhaps underpinning a much more integrated eurozone with democratic accountability how's that going to be done he would love to be thinking of things like this after all it was volkang schoibler who first really espoused the idea of a european monetary fund which is exactly what we've got with the european stability mechanism so it's an interesting future anyway um volkang schoibler believes that euro bonds eurozone bonds of some sort are actually inevitable but you need treaty change he insists to have it he wouldn't be able to get it past the constitutional court let alone the german electorate unless there was clear treaty change that actually said set you know all the rules very firmly enforceable before germany will guarantee fundamentally other people's debts anyway gabry sigmar gabriel also believes in that so it's very interesting you've got significant elements in this new government who are actually believers in if you like more of a transfer union in the european union um the second thing energy transition is a very big deal for german business and the german business community was amazingly reticent at the beginning of the process uh when mackle suddenly decided overnight to accelerate the exit from nuclear power re-accelerate back to where it was um and then more and more it's come out that people are actually really nervous about the very high costs both for industry and for consumers of the transition that's the job that's been dumped in the lap of peter altmaier one of the other great europeans in the german government uh and it's a very difficult balancing act to get because nobody nobody wants to reverse the nuclear decision uh somehow they've got to make that transition to renewable energy without bankrupting german industry down the line the interesting thing about the debate of course is that the splits over energy policy are not between the cdu and the spd but within the cdu and within the spd it's between the lender who have old energy and the lender who want new energy so it's actually a very difficult balancing act uh to get right um i've i've touched on federal reform i think already was that earlier federal reform is about helping the lender to cope with a balanced budget so it's it's going to see a transfer of money to the lender this is the one area where i think we might have a little more stimulus than is expected or intended for for growth where you'd get more spending going into transport canals railways but also schools and higher education and broadband german broadband is still desperately slow somebody said the other day it's slower than it is in rumania um which is not something that you say anyway um and and and federal reform is a good way of buying in the social democrat state premiers like hanellora craft very important person the state premier in north rinwest failure who could very well be she will be the more likely candidate for chancellor next time round if there's no angular merkel standing in four years time then suddenly it's much more open um and the finalist you managing demographic change is a big theme for merkel and that also helps her i think with uh with the social democrats and bringing in um bringing in uh more social policies um sigma gabriel has played a weak hand in these negotiations rather well he got all his fellow spd leaders into the negotiations they're all involved it's an enormous 75 people are sitting in the main room trying to sort these things out and the main reason to do that was for gabriel to get all his people on board so that the end of the day he's not sitting as the only one who's selling the idea um uh so in a way to draw things back together um don't raise your hopes for any big change in eurozone strategy the merkel balance being pro european while protecting the german taxpayer is exactly what german voters wanted that's why they gave her so many votes and as for long-term reform and treaty change well yes germany is prepared to go down that route and indeed says it's inevitable it's france that's hesitating it's it's france warholand who's terrified at the thought of splitting his socialist party with another eu referendum so merkel has said okay well we'll do everything we can short of treaty change but at the end of the day i think we may have to do it on the other hand i don't want such a treaty change that david cameron is going to drive a coach and horses through the ackee communitaire i want a very minor treaty change that will allow us to do what we need in the eurozone she's worried that she wants cameron on board she wants cameron to stay in but she doesn't want to open a pandora's box to everybody to try and pull out the stitches uh in what's been agreed and the spd very importantly of course doesn't like at all the sort of things that cameron might like to repatriate the spd wants to keep them as european rules the social regulation and so on is something very important to cameron to the spd heart so cameron should beware that this grand coalition in germany is going to be somehow easy for him to get what he wants out of and i think ireland should also beware because remember one other thing about the spd they are strongly opposed viscerally opposed to what they call tax dumping they think this is unfair competition they think this is this is undermining uh both uh a level playing field uh and they were the hardest line remember in the cyprus program in forcing cyprus to haircut its bank depositors they regard low tax regimes whether they're in cyprus or in ireland as fundamentally unfair competition angelo merkel is more pragmatic for her the key is stabilizing the euro her mantra remains if the euro fails europe will fail everything else is a lower priority including keeping the brits in the european union she will be intergovernmental if she must but communita if she can she doesn't really trust borosso she doesn't think he's been a successful president so she's a bit anti commission at the moment but this is entirely tactical this is not fundamental to her she's not unlike the brits and the french she is much more communautaire she's not an intergovernmentalist the next european parliament elections are going to be fascinating because guess what the two partners in the german government will be back on opposite sides of the fence so another reason for not putting too much detail in their european policy five months after they form a government they're going to be fighting against each other on european policies so they each want to keep a few policies in their back pockets so that they can disagree but at the end of the day this next german government is going to be more pro european than the last one but also not very different in its fundamental difficulty and my last thought is just to leave the open question of the alternative of your deutschland is this euro skeptic movement and let's be very clear it's a euro skeptic movement it's a movement that is opposed to the euro being quite so i mean they want to split the euro fundamentally they'd like the greeks out they'd like other mediterranean countries out if they can't hack it they were very careful in the election campaign not to be labeled as a right wing party anti immigration as well as anti euro like ukip in britain or indeed had builders in the netherlands but they have a potential pool of support of 15 to 20 percent if the euro is seen to be damaging to german interests then that support could turn out certainly in the european elections to back them and of course the thing that really worries people in germany about the eurozone is not so much the amount of money that may be going to guarantee ireland or greece or portugal or wherever it's the low interest rates it's the fact that savers aren't getting any money back on their savings and that's where they're feeling that the euro's not been good for germany and even if you turn around and say oh my god but look at the fact that you've had this fantastic export market with a guaranteed exchange rate no it's actually still a belief that it hasn't been fundamentally good for germany so there's my last open question that there is always going to be a drag on the fundamental pro europeanness of germany i will stop there