Germany: Hesse, not Bavaria, is the Key

Published on October 16, 2018

As the dust settles after the pounding the Christian Social Union took in its home bastion of Bavaria, a quick note on what it may mean for the besieged Chancellor Angela Merkel and her struggling Grand Coalition in Berlin:

*** The most important political takeaway from the Sunday results was not the (generally expected) drop in the CSU or even the rise of the Greens as Bavaria’s second largest party. It was how badly the Social Democrats fared. SPD support, which is already barely polling 16% at the federal level, plunged by more than half to barely 9.6% in the Bavarian vote, and that significantly raises the stakes for the SPD in the state election in Hesse on October 28. ***

*** The SPD is not expected to win in Hesse, but if it polls less than the near 29% it picked in the last Hesse election, we understand it is very likely to foment an open internal party revolt against the current party leadership under Andrea Nahles, and set in motion a move to withdraw from the ruling Grand Coalition in Berlin in order to start a long process of rebuilding its political base and identity. ***

*** Even if the SPD revolt drags out rather than igniting immediately, while it would keep the fragile Grand Coalition intact — none of the main political parties, be it the Christian Democrats, the CSU, or the SPD, want an early federal election — it will further weaken Chancellor Merkel’s hand in negotiating key European Union or foreign policy issues and could still trigger a challenge to Merkel’s leadership at the CDU party conference in December. ***

And the potential fallout from Hesse on German coalition politics could have major implications for broader, pan-Euro issues critical to markets, including the European Council’s stance towards the government in Rome, the populist revolts and European Parliamentary elections in May, and the upcoming succession battles for the leadership of the ECB and European Commission.

Bavarian Results

The CSU’s 37.3%, a freefall from its usual 50% plus polling, was the worst in its home state since 1950, and will be forcing it into only its second governing coalition since 1962, probably with the Free Voters, a breakaway CSU faction that polled 11.6 percent. The media made much of the doubling in the Green vote to 17.8 percent and a similar surge on the opposite end of the political spectrum for the AfD to 10.7%, enough to put them into the state parliament for the first time.

The more important impact of the Bavarian results is how the CSU adjusts to its erosion of support in its home state. The fate of Horst Seehofer, Merkel’s Interior Minister who tried to play a tough anti-immigration card to bolster the CSU against the rise of the AfD as well as boost his own standing within the CSU, will be determined by the internal CSU discussions in the next week or so, but we would suspect he will take the fall by resigning from the cabinet.

His successor will be chosen by the CSU and presented to Merkel, with the most likely candidate being Joachim Herrmann, currently the Bavarian interior minister, as both Bavarian Prime Minister and CSU party leader Markus Soeder and the CSU head in Brussels, Manfred Weber, are determined to make sure their chief rival within the CSU, Alexander Dobrindt, doesn’t battle his way within the CSU to a federal position.

Soeder himself will have to bear some of the party criticism over how badly the CSU handled the election campaign, butis likely to weather the storm by being much more conciliatory to Merkel and the Grand Coalition. The most immediate lesson taken on board by the CSU leadership is that its late in the day ramping up of the anti-immigration issue badly backfired, sending its more moderate wing to the Greens and its more rigid right wing to the AfD.

Indeed, Seehofer has already publicly promised “polite behavior” if he is allowed to remain in the Merkel coalition, and that his return or succession should above all “ensure stability” of the Grand Coalition.

The Hesse Stakes

The newly cooperative CSU underscores how much the CSU drubbing is likely to help Merkel more than hurt her in keeping a grip on power in Berlin, despite the media speculation to the contrary. But it is also why we think greater attention should be focused on the repercussions of the Bavarian electoral outcome for the SPD, without whose participation Chancellor Merkel’s Grand Coalition would collapse.

Hesse is currently ruled by a CDU-Green coalition government. Should Hesse turn in a stunning result, with the CDU actually losing its standing as the largest party in the wealthy state, home to the Frankfurt financial center, it would almost certainly trigger a serious challenge to Merkel’s party leadership — just last month the CDU deputies in the Bundestag ousted her long serving fraction leader Volker Kauder.

The latest polls, however, for now suggest a loss of support for the CDU, but that it should still lead the negotiations to form another coalition government, most likely a repeat with the Greens.

But we think the polling results to keep a close eye on are for the SPD, currently polling just 23% or so compared to its 28.8% results five years ago. If its support collapses even further, say, below 20%, it could very well trigger an open revolt of the party’s rank and file against the party leadership led by Nahles and Olaf Scholz, currently serving as Merkel’s finance minister.

Nahles tried her best to blame the SPD’s rapidly declining political fortunes to the bitter infighting between the CDU and the CSU. But it is unlikely to placate the SPD dissidents who came close to forcing the SPD to pull out of the Grand Coalition during the long negotiations to form a government after the September 2017 federal elections (see SGH 6/29/17, “Germany: Rebellion Quelled, for Now”).

A further erosion of the party’s political support — which has historically polled 40% plus in the German federal elections — would drive it into a fading role in Germany’s political left of center, supplanted more or less by the Greens as Germany’s more muscular centrist party; all the more reason for the embattled SPD to withdraw from the Merkel-led government and start a long rebuilding in opposition.

We suspect that argument will become overwhelming within the SPD. Whether the SPD does indeed take steps down that road, and how soon, and indeed, whether it would force snap elections is unclear and a next move on the German political chessboard. But Hesse is most certainly the next risk point to be monitored in terms of German, and EU, political stability.

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