Rethinking Europe

Germany: Political Helter-Skelter

The AfD’s Thuringia maneuver caught Germany’s right-of-center parties flat-footed. The odds of a leftist coalition at the federal level in 2021 are rising.

Credit: Paul Blair www.flickr.com

Takeaways


  • The German right-wing AfD’s Thuringia maneuver caught Germany’s right-of-center parties flat-footed.
  • After Merkel’s heir apparent Kramp-Karrenbauer announced she would not lead the CDU into new elections, pressure to choose a candidate for the chancellorship is growing.
  • The key question is not who will strive to follow Merkel. It is whether the risk that the CDU/CSU may not end up in government at all after new elections is rising.

After Merkel’s heir apparent, Annegret Kramp-Karrenbauer (AKK), announced on Monday that she would not lead the CDU into new elections, the pressure on her party to choose a candidate for the chancellorship soon is growing.

The pro-business Friedrich Merz and the widely respected governor of North Rhine-Westphalia, Armin Laschet, remain the top two contenders to succeed Merkel, followed by health minister Jens Spahn.

However, the key question is not who will strive to follow Merkel. Rather, it is whether the risk that the conservative CDU/CSU may not end up in government at all after new elections is rising or not.

The economics

From an economic point of view, only a shift from a coalition in which the CDU/CSU leads the government to one where the Greens team up with the center-left SPD and the left-wing Left Party instead would make a significant difference.

With an inclination for heavy regulation along the lines of the housing rent cap in the city state of Berlin, where a red-red-green coalition holds sway, such a federal government without the CDU/CSU could undermine the longer-term growth potential of Germany.

Near-term, the Thuringia scandal where the right-wing AfD outwitted the CDU/CSU and the liberal FDP could dent support for the CDU at the federal level. It has already done so in Thuringia.

This raises the risk that a green-red-red coalition could win a majority at the next federal election. In pre-Thuringia opinion polls, these three parties were as a group about two percentage points short of such a majority.

The emergence of such a leftist coalition at the federal level may actually be the political scenario the AfD is playing for in order to get more votes from right-of-center voters in Germany.

Conclusion

For now, the near-term impact of the current political upheaval need not matter much. As the SPD seems determined to stay in Merkel’s coalition for the time being, the risk of snap elections this year remains modest.

Longer-term, that is in time for the regular election date in September 2021, the CDU may well recover. Haunted by a few early missteps, AKK had failed to raise support for the CDU. Both Merz and Laschet may well do better on that count.

If so, the change at the top of the CDU could – in the end – even reduce the tail risk that Germany ends up with a green-red-red government in 2021.

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About Holger Schmieding

Holger Schmieding is chief economist at Berenberg Bank in London. [United Kingdom] Follow him @Berenberg_Econ

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