The German election takes place tomorrow, with Chancellor Angela Merkel the favorite to defend her position against Martin Schulz for a fourth term in power. The AfD will for the first time win seats Bundestag elections. The the union parties and the SPD are losing approval while Merkel’s party, CDU / CSU, polls at just 34%, which is two percentage points less than the last election. The SPD is polling at just 21% with the left at 11% and the FDP at 9%. The AfD, according to the opinion research institute Insa, is gaining two points and comes to 13%, the Greens increase one point to 8%.

Polls currently show that Merkel’s Christian Democratic Union (CDU) party – with its Bavarian sister party, the Christian Social Union (CSU) – will be the largest party after the Bundestag election, but they will fall short of a majority once again so there will have to be coalition government with the SDP. This is what is harming Germany and Europe for it gives the impression that Merkel has a mandate when she cannot win 51% of the German vote.

Therefore, the wildcard remains the AfD and if they come in at a higher level than expected, there will be an ongoing battle that will turn against Merkel in the next two years. If the AfD come in above 15%, then the shape of the coalition government may be different than expected. As one German politician put it, you will have to drag Merkel out by the hair to get her to to leave office. Therefore, expect no change in the course of direction for Europe. As long as Merkel is still there, it will be more of the same but worse with ever increasing taxes and more deflation. You cannot reverse the course of Europe without changing the leadership.

The German Bundestag election campaign has seen a total black-out of any discussion of the major crisis that is building in Europe. Nobody is mentioning that Euro crisis, ECB monetary policy, disintegration of the EU, refugee crisis, pension crisis, the municipalities on the brink of insolvency, or the drastic increases in taxation coming AFTER the election that will only lower disposable incomes and extend deflation.

The politicians, and the press, are in full swing to hide the real trend at foot. The press is running stories why the Germans Love Merkel, yet she has never won even 40% of the popular vote. Even the press outside of Germany is in on the “selling” of Merkel because she is the leader of Europe – good – bad – indifferent.

Perhaps the monetary policy of the ECB has set the stage for a serious monetary crisis over the coming years that will seriously disrupt the German economy, in one way or another, depending upon the industry. Mario Draghi has experimented with negative rates which has kept the Eurozone governments on life-support – but they have not used the time to reform anything.

Draghi’s experiment has altered the economy and the financial sector in Europe. They now are faced with two equally unfortunate alternatives: if the ECB continues its monetary policy, many banks in Europe will slip into bankruptcy. Today, the traditional business models are no longer working because most banks with zero and negative interest rates have lost the most important source of revenue – deposits. A simple mathematical calculation projects widespread bank insolvencies in Europe as we enter the next decade.

The events in Barcelona demonstrate that there is a denial of any democratic government in the Eurozone. The elites have made the decision to federalize Europe and nobody is allowed to leave. Brussels learned nothing from BREXIT and this disintegration of the EU will worsen as the economics turns against it. The disintegration of the EU is only further enhanced by the refugee crisis. No other Arab country will accept the refugees such as Saudi Arabia or UAE. They know better. Two of the terrorists in Britain were refugees.

The negative interest rates have carved out huge holes in the pensions of Europe. Some members have issued 100 year bonds at less than 2.5%  and 50 year bonds as in Switzerland below 1%. This is merely a reflection of deflation projected out for extended periods of time.

The German Bundestag election is void of any discussion of the trouble in the EU or how Germany will be affected in beginning after the election. There is no mention of imposing a turnover tax on the internet and no mention of forcing companies to prepay all the VAT even on a 5 year contract covering installments. The desperate need for cash among the governments is not being addressed. Nobody seems to think twice that the governments constantly need a greater proportion of  private sector money to stay afloat and this in itself is driving the deflation.

The Spanish government refuses to listen to anything from Catalonia  and announced it would intervene in Catalonia’s finances to ensure that “not one euro” of public money was used to fund the “illegal” vote. Meanwhile, the Spanish police arrested 13 people in the region of Catalonia and Madrid for their alleged involvement in planning a vote to secede from Spain. This is clearly demonstrating that the Spanish government is reverting to its old fascist ways for it is the boldest move yet by Spanish authorities to stop the separatist movement.

It was 1931 when the nations defaulted on their debts that saw Estat Català and other parties began to form Esquerra Republicana de Catalunya (Republican Left of Catalonia)(ERC). The ERC won a dramatic victory in the municipal elections that year and this is when we must regard the first major step in the separatics movement.

Francesc Macià founded Estat Català (Catalan State) and proclaimed the Catalan Republic. However, after negotiations with the leaders of the new Spanish Republic, he instead accepted autonomy within the Spanish state. In the Spanish Civil War, General Francisco Franco abolished Catalan autonomy in 1938. Following Franco’s death in 1975, Catalan political parties concentrated on autonomy rather than independence.

To put this in context, it was 1931 which gave birth to the Second Republic of Spain on April 14th, 1931 after the departure from Spain of King Alfonso XIII, following local and municipal elections where republican candidates won the majority of votes in urban areas. Though Alfonso did not formally abdicate, his departure from the country led to a provisional government under Niceto Alcalá Zamora. It was at this time that a constitution was drawn up.

The Second Republic of Spain in 1931 raised the hopes for the Spanish people that the middle and lower classes would be allowed to at last advance. This included at the time women rights and for the curtailment of special privileges for the Church. It was Spain’s attempt to establish a non-religious basis for national culture and citizenship.

Nonetheless, there was the largest working-class party that was the Socialists. Their principal goal was Marxist-inspired economic and social change, but they strongly favored a republic. The situation changed dramatically on May 10, 1931, as a result of the “Burning of Convents”. The provisional government of the Second Spanish Republic had little interest in restraining manifestations of anticlericalism, as became apparent shortly after the proclamation of the Republic. Many of the new political leaders were openly anti-Catholic. So we had at this time a growing Marxist movement in Spain as well. Then on May 10th, 1931, the playing of the monarchist anthem or hymn at a royalist club in Madrid provoked an attack by supporters of the Republic that soon degenerated into three days of violence directed primarily against churches, convents and monasteries. Rioting soon spread from Madrid to Seville, Malaga and four other cities. The government at first did nothing to quell the growing violence. This fragmentation would lay the foundation for the rise of Franco and the Civil War.

The Spanish Constitution of 1931 was approved by the Constituent Assembly on December 9th, 1931. It remained in force only until  April 1st, 1939. This was the second period of Spanish history in which both head of state and head of government were democratically elected.

The planned referendum will take place on October 1st. Madrid refuses to address any issues despite the Catalan President and the mayor of Barcelona appealing for an agreement on a vote and issuing “a new call to dialogue” without preconditions. The 1931 movement for independence was the watershed moment. Cyclically, this is now 86 years in 2017. There is no question that independence will eventually succeed, but this is also coming at a critical time to try to save the EU. Cyclically, this is simply right on time 2017.

A comment from a reader in Barcelona says it all how memories still run deep:

Violent protest are starting to rise in Germany against Federal Chancellor Angela Merkel. Keep in mind that Merkel has never won 51% of the popular vote. She rules Europe solely by a coalition. DWN reports that she was confronted with shouts of  “Hau ab!”, whistles and “hatred”. They are appearing with poster reading “Merkel hatsten Deutschland”.  It is unusual for German to engage in such civil unrest.

When Martin Schulz  became the leader of the SPD, it rallied sharply to 31%, which was just one point behind the CDU/CSU at 32% back in March 2017. As people I know in the EU Parliament told me, wait until the Germans get to know Schultz. That threshold seems to have arrived.

CDU/CSU now polls at a staggering 16-point lead with 37% of the popular vote, compared to just 21% for the SNP. Meanwhile, the far-right Alternative for Germany (AfD) are trailing well behind the main parties at 11%, down from 15% back in January 2017.  However, the AfD is polling well above the five per cent margin required to win seats in Parliament. The party rose to prominence two years ago at the height of the European migrant crisis and the wave of populism that came partly as a result of the influx of refugees into Germany. Therefore, we are looking at the first time since WWII that a far right party even get one seat in Parliament.

The DAX is clearly targeting the week going into the election but the Euro appears to be ignoring the German election.

Chancellor Angela Merkel rules Europe by a grand coalition government in the German Bundestag relying on the FDP. While the CDU will win the majority of seats, it will still not be enough to rule alone. Note that the FDP has taken a sharp drop and the AfD has risen sharply. Therefore, Merkel’s grand coalition is not yet a shoe-in. There will have to be some backroom manipulation to keep the status quo.

Germany has a notoriously very complex voting system for electing its Bundestag, or lower house. The system seeks to combine the benefits of both direct and proportional representation while guarding against the electoral mistakes of German history, which saw political fragmentation during the Weimar Republic between WWI and WWII. While the turnout for the last two election fell sharply to just 70%, this election is far more heated and should see a sharp increase – which is not good for Merkel’s Grand Coalition.

A person casts their vote for two candidates, The German ballot is divided into two columns. The first column is black and the second column in blue, each representing a direct vote for a candidate and then for a political party. Worst still, Germans while on the surface you may be casing a vote with two choices – one for a district representative and one for a party, there is more to it than just that.
The first vote or “Erststimme” for the district representative, follows a first-past-the-post system like elections in the United States. The voter selects his or her favorite candidate to represent their district in the parliament. Every candidate who wins one of Germany’s 299 constituencies – which are divided up per 250,000 inhabitants – is guaranteed a seat.

To fill the other half of the 598 seats in Germany’s Bundestag, voters then cast their ballots in the second vote or “Zweitstimme.” This vote goes to a political party instead of a single candidate. It also determines the percentage each political party gets in the Bundestag.

Now comes the complexity. The ballot also allows voters to split their vote among parties!. So you can split your vote casting one for their local CDU candidate in the first vote, but casting their ballot for the Liberal Democrat FDP in the second vote. This is how Merkel maintains the Grand Coalition.

Therefore, we clearly have the risk of the AfD wining seats for the first time. So while Merkel will most likely still be Chancellor, the mix is going to cause some backroom deals.

Nigel Farage Speech at AfD w/Q&A – 8th September 2017