Germany: The Merkel Transition

Published on October 30, 2018

In the days after the Hesse state election setbacks and Chancellor Angela Merkel’s bombshell announcement she is stepping down as Christian Democratic Party leader, three questions loom large: how long will Merkel remain chancellor; who will replace her as CDU party chairman; and how long before the reeling Social Democrats bolt from the Grand Coalition?

*** A Chancellor does not necessarily have to be party leader as well — Ludwig Erhard was chancellor, while Konrad Adenauer remained CDU Party Leader during the wirtshaftswunder post-war years, and Helmut Schmidt was Chancellor while Willy Brandt was SPD party leader in the late 1970s  — but Merkel would only remain Chancellor much beyond the December 7/8 CDU party conference if the new party chairman is a close political ally. In this case, that would mean Annegret Kramp-Karrenbauer, the CDU Secretary General. ***

*** While we expect Kramp-Karrenbauer to win the CDU party vote in Hamburg, if either of two other rivals win the CDU backing, Jens Spahn, the rightwing health minister, or Friedrich Merz, the former finance minister who may in fact be something of a stalking horse for Bundestag President Wolfgang Schaeuble, we think it unlikely Merkel will remain Chancellor much past year-end. A compromise candidate, North Rhine Westphalia Prime Minister Armin Laschet, might keep the Merkel-led government intact, but only at the price of further fragility. ***

*** And in any case, Merkel’s fate ultimately lies not with the CDU, but with the reeling Social Democrats. The SPD fared even worse than the CDU in both Bavaria and Hesse, and they would be highly unlikely to stay in a Grand Coalition with either Merz or Spahn as CDU party chairman. Indeed, the leadership of the deeply divided SPD is resigned to picking their moment to pull out of the Grand Coalition at the first opportunity to rebuild the party’s core policies well before the next federal elections. ***

We think the markets are still far too complacent over the high likelihood that Merkel will not be serving anything near her full fourth term until 2021.

And whatever the outcome of the internal party maneuvering within the CDU and the SPD over the next few weeks, we expect a fragile Grand Coalition in Berlin to translate into a continuing policy paralysis, precluding any further steps towards “ever closer union” on the European project, limiting room for compromise or concessions on the Brexit negotiations, and stripping much if any of the remaining vestiges of friendly cover that may exist for Italy within the European Commission and Council.

The Post-Hesse CDU Maneuvering

The trigger to Merkel’s momentous decision was, of course, the repeat shellacking of the CDU in Sunday’s Hesse state elections. Coming only two weeks after the CDU sister party, the Christian Social Union, lost its majority in the Bavarian state elections, the CDU saw its support plunge in Hesse to barely 27% from 38.3% in 2013.

A CDU/Green coalition government will be returned to power in Hesse — barely, with a narrow one seat majority in the state parliament — but the dismal results are foreboding for the CDU, which is currently polling at barely 25% compared to its more traditional 40% plus share of the national vote.

In a move to shore up the CDU’s crumbling in the German political center, there were indications Monday night that Merkel intended to announce her decision to quit the party leadership at an upcoming CDU retreat of some 50 senior party members next week. But her decision was dramatically brought forward to yesterday at a smaller executive board meeting, after some  especially sharp criticisms by Schaeuble, attending the meeting by right of his senior position in the Bundestag, and by long-time critic Health Minister Spahn.

What’s more, there is a sense in senior CDU ranks that Merkel may have brought her decision forward in order to flush out her internal party opposition once and for all, and perhaps while she still has a firm grip on the party power levers, to give a quick upper hand to her favored party leader candidate, Kramp-Karrenbauer, or AKK as she is known.

Kramp-Karrenbauer, the CDU Secretary General and former Prime Minister of Saarland, who quickly announced her intention to run for the party leadership, has solid support across the CDU, the right liking conservative views on family values and gay marriage while the left of center valuing her support for workers’ rights and a minimum wage.

She was recently put in charge of crafting the party’s next manifesto, and is already reaching out to those CDU deputies who defied Merkel a few weeks ago in voting down CDU fraction leader Volker Kauder for Ralph Brinkhaus by appealing to their sense of wanting a change — but in a more positive constructive way than openly undermining the Chancellor.

Also working in AKK’s favor is a widely held sense within the CDU ranks that Spahn is simply too ambitious for his or the party’s good. Spahn, for all his headline-grabbing maneuvers, still lacks much support beyond the CDU’s far right edges and with the CSU, who have no say in the CDU internal matters.

Merz, on the other hand, as a former fraction leader, does have deeper support within the CDU, especially in being closely aligned with Schaeuble.. But Merz does not currently hold a parliamentary seat, he holds an executive position on the German arm of Blackrock Asset Management, and needs more time to build support within the CDU, and perhaps to forge an alliance with Spahn to secure rightwing votes.

For now, his appeal still lies with the CDU’s liberal (in the European, pro-market, not American meaning of the word) economic wing and the business community, and in a mirror to Spahn’s support in the CSU, Merz appeals to the FDP, especially under its new, much more conservative leader Christian Lindner.

There is one mostly unspoken factor that may be working against AKK, in that many in the CDU ranks may hesitate over putting the party in the hands again of a female chairman, however qualified. That may be one factor that points to a compromise candidate, Armin Laschet, the Premier of North Rhine Westphalia, might keep the Merkel-led government intact, but has not yet thrown his head in the ring.  Laschet is more of a centrist on economic policies than the liberal Merz and may find a much broader support within the CDU, appealing to the same deputies as AKK.

If AKK fails to consolidate her position quickly in the coming week or so, a drawn – out leadership battle could end up further weakening the CDU’s already wobbly standing with clearly disenchanted conservative voters could fall even further.

We do expect AKK to prevail, if for any other reason, we understand Merkel would not countenance taking her party instruction from either Merz or especially Spahn, so voting for either candidate would essentially be the same as voting for snap elections. And no one in the CDU is prepared for that.

The Extended SPD Travails

What’s more, either Merz or Spahn as CDU party chairman would quickly lose favor with the SPD, the junior partner in the Grand Coalition, and invariably hasten a decision to withdraw from the governing Grand Coalition.

The SPD has already declared its intention to “get tougher” within the Grand Coalition in order to salvage something of the party identity that has diminished after the years of working under Merkel and her successive moves from the right to the center and even the center-left over the years.

The leadership under Andrea Nahles has for now beaten back the dissidents within the party ranks pushing for an immediate withdrawal from the government and who had bitterly opposed entry into the Grand Coalition last spring in the first place. Next weekend will see the SPD also holding a board meeting to discuss the consequences of the last two disastrous state elections and to plan its stance within the Grand Coalition in the coming year.

But it is clear the SPD leadership knows they need to get out of the governing coalition well before 2021, especially with the rapid rise of the Greens to supplant the SPD in the left of center opposition. That existential need to save its core political identity is likely to mean a move to bolt from Merkel some time next year, assuming Merkel first manages to quell the revolt within her CDU ranks in the coming weeks.

So it is only a matter of time, perhaps sooner rather than later, that the SPD will be looking for the first opportunity to pull out of the Grand Coalition, especially while it can cloud its own strategic mistakes under the cover of CDU and CSU internal squabbles.

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