Europe's most powerful country will once again have a stable government, comprised of Merkel's Center-Right CDU/CSU and the Center-Left SPD for another four years. What could have thrown Europe into renewed chaos has been averted.
With Merkel back at the helm, the stage is now set for a consolidation of the European Union along the lines that she has agreed with French President Emmanuel Macron. This would involve
a harmonization of corporate taxes, an investment budget and possibly even a EU Finance Minister
Outside of Germany, the most immediate impact of the new coalition will be felt in the United Kingdom. Germany has been disengaged from the discussion over Brexit since its elections last September. This will change now.
Angela Merkel was the first politician to warn that Britain could "not cherry-pick a deal." Merkel's aversion against Rosinenpickerei
-- the German word actually means "raisin picking" -- means that Britain is less likely to get a deal with the EU along the lines espoused by UK Prime Minister Theresa May on Friday.
Of course, German business might lose trade with the UK, but Merkel believes small short-term pain is worth long-term gain. A punishing deal for Britain will discourage other countries from following suit.
The reasoning for this is the same as in 2015, when the EU imposed sanctions on Russia over the war in Ukraine. Putin believed Merkel was bluffing. She was not. Her sanctions were supported by German industry. The same is true for Brexit. Merkel will likely take the same tough line against May and will be supported by the Social Democrats.
The pro-EU Franco-German relationship will also be strengthened. This means that Merkel and Macron will be able to formulate a united front against Donald Trump. A combination of Merkel's sotto voce
diplomacy and Macron's machismo will probably avert a full-blown trade war. The two are aware that Trump's main audience is domestic and that his threats -- just this weekend
he threatened to impose tariffs on the European car industry wanting to import into the US -- rarely materialize.
However, not all will be smooth-sailing for Merkel. She was badly burnt after the refugee crisis in 2015 and 2016, when Germany took in close to one million Syrian refugees. That mistake will not be repeated. The coalition agreement in effect puts an upper limit on the number of refugees that will be able to enter Germany.
This policy will be the responsibility of Horst Seehofer, the right-wing official who has been serving as head of Bavaria. This will go some way in limiting the appeal of the far-right Alternative für Deutschland, now the official opposition in the Bundestag after securing 13% of the vote in last year's election. That the latter party is split internally will further strengthen Merkel's government.
As for her coalition partner, life will be challenging. The Social Democrats were overshadowed by Merkel in the previous government. That the party now controls both the ministries of finance and foreign affairs will give them some much-needed profile. But this might not be enough: across Europe as a whole, center-left political parties have been struggling.
The once-almighty Socialists have all but disappeared in France and the Netherlands, and their support is spiralling downwards in Spain and Italy
. The same is now happening in Germany. Under Merkel, the CDU has effectively usurped the Social Democrats' most popular policies. This is set to continue under Merkel's possible successor, Annegret Kramp-Karrenbauer.
By voting for the coalition-deal, the Social Democrat members may have merely postponed their inevitable demise. Europe's next chapter will, it seems, be written by centrists, not by the far-right or traditional social democrats. This will take different forms. Inspired by the Netherlands, the centrist parties are in the process of adopting policies that limit immigration, which will reduce the electoral threat from far-right parties.
At the same time, the German Grand Coalition and Macron's administration in France, are implementing Scandinavian labor market reforms (flexible labor markets with a social safety-net).
It is one of the paradoxes of history that these policies were once espoused by many British Conservatives who voted for Brexit. And it is now not inconceivable that in the near future, Britain could elect Jeremy Corbyn's socialist Labour Party and implement old-fashioned social democracy, while the rest of Europe embraces a milder version of Thatcherism.