Upcoming Bavarian Elections Could Have Major Consequences

German Politics Under Pressure

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The main issue dominating the German political landscape this year, since the new government started in March, has been the upcoming Bavarian elections due to be held on Sunday.  As part of its drive to maintain an absolute majority in Bavaria, the CSU (which is the sister party to Angela Merkel’s CDU and part of the coalition government) has been publicly slating the chancellor. These attacks led to a rift which almost caused the collapse of the German government earlier in the year as both parties clashed over the issue of whether the German police should have the power to turn away refugees arriving at the German / Austrian border. Indeed, the CSU even forced Merkel into holding an emergency European Summit to agree on a solution to the issue.

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Many are hoping that the regional elections this Sunday will cause a scaling back of tensions, though there are risks that the situation will continue given the fact that regional polls in German tend to be an essential conditioning factor for national elections.

Regional Elections WIth Big Impact

In 2010, the North-Rhine Westphalia elections resulted in a rule-changing delay to the Greek bailout package. Indeed, at the start of 2017, a set of SPD regional defeats crippled Martin Schulz’s chances of contending for the government, has been a strong candidate (and a threat to Merkel) ahead of the elections. Mostly, local polls serve as a confidence vote on national politics as well as a decision on regional issues.

CSU Kicking Up A Fuss

The CSU sought to make the regional elections in Bavaria a proxy referendum on Merkel’s position on refugees. Mostly, the CSU was trying to latch onto popular opinion regarding immigration, with Merkel coming under heavy fire over her open border policy from 2015, in a bid to distance itself from Merkel and position itself as the right choice in Bavaria and prevent the AfD from gaining power. However, the latest polls suggest that this strategy has failed dismally as, with less than 40% of the vote, the CSU looks on course to register its worst result since 1954.

Importance of These Elections

The Bavarian elections are a critical regional election given not only the size of the state (totaling 16% of the German population and 18% of German GDP) but also because of the CSU’s traditional dominance here. The CSU has won 12 absolute majorities out of the last 13 elections and has been a key part of the success of the CDU/CSU coalition in federal elections with around 20% of CDU/CSU seats in German parliament coming from Bavaria. Consequently, these elections will be a vital determinant of the next federal elections.

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Potential Outcomes

Historic Defeat

If the polls are correct and the CSU suffers a historic defeat with less than 40% of the vote; we could still see the CSU leading the next Bavarian government though it would be alongside one or two coalition partners. The real winner, in this case, would be Angela Merkel as the party would likely be far less inclined to continue waging an inner-coalition war against Merkel in government. However, such a result could also spell trouble for Merkel in the long term, signaling the decline of the conservative bloc in German national politics and the rise of the far right.

CSU Comeback

Alternatively, we could see the CSU make a surprise comeback which would likely be very damaging for Merkel as it would strengthen the CSU’s conviction and give it more ammo. This could spell serious trouble for the health of the coalition government which, in turn, could throw into jeopardy, the prospect of any significant pan-European or international political projects.

The outcome of these elections have the potential to rock German national politics and given the frail state of European politics at the moment, the impact on the markets could be visible with European equities likely to suffer if we see a shock.

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