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What Now For Germany?

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Following the disastrous results (for the two ruling parties in Germany) of the regional elections in Hesse on Sunday – results which weren’t entirely unexpected as was discussed in a previous article – the political situation in Germany has come to a head, with Chancellor Angela Merkel announcing that she will not stand for reelection to her party leadership post. Let’s have a look at what that could mean.

First, there is the political uncertainty aspect which markets, in general, don’t like; it was the results of the election that caused the Euro to open weaker across the board. Germany is the largest economy, the largest stable economy, and arguably the motor of the eurozone – protracted internal political squabbling will keep it from being the usual bulwark against uncertainty in Europe that is usually attributed to peripheral countries. With Merkel politically weak at home, it will be harder for her to press Germany’s stance among the Euro partners.

It’s not politics as usual

Given the fractionation of politics in Europe in general, protracted discussions over forming a government and shaky alliances aren’t new. Not even for Germany. So, what’s going on?

Many commentators pointed to the elections in Bavaria and Hesse as being mini-referendums on the central government, with voters using them as an opportunity to send a message to Berlin. They aren’t happy. What exactly that is, it seems to depend on the political affiliation of who’s asked. But as far as the currencies are concerned, the rise of Euroscepticism and the inability of the traditional parties to reassure the citizenry about the European project is an issue.

What’s the situation now?

Following the elections, Merkel called a press conference to announce that she will not seek re-election to her party leadership, will not seek re-election in her district when her term is up in 2021, and will not seek to be Chancellor after 2021 – but she wants to remain in power until the end of her term.

The Chancellorship in Germany is not like the Prime Minister in other countries, which is why stepping down from the leadership of the party doesn’t immediately lead to a new Chancellor. It is customary for the largest party to elevate their leader to the Chancellorship, but not required – in the 70s Helmut Schmidt was Chancellor without being the leader of the party. So, the situation isn’t entirely unprecedented.

Can Merkel hold on to the Chancellorship until the end of her term?

That’s an open question at this point: it took nearly six months to agree with her current coalition partners, the SPD, who were punished even worse in the regional elections – for remaining in coalition with their otherwise political enemies. But it’s a question for further down the road, after December when the CDU holds their internal elections and will choose Merkel’s successor as leader of the party (and, presumably, next Chancellor should the party win the upcoming elections). (Also of note that Merkel acknowledges she wouldn’t seek to be Chancellor if elections were held early, admitting to the possibility of snap elections.)

As we mentioned before, however, a clear successor for Merkel has not been defined. Several threw their hat into the ring even before Merkel had made her announcement that she wouldn’t stand for her party’s election, and still, more might make their intentions known in the coming days and weeks. So far, potential CDU leaders include Annegret Kramp-Karrenbauer, seen as Merkel’s preference, after being hand-picked for secretary general of the party; Merkel critic Friedrich Merz; and current Health Minister Jens Spahn. However, few of them are stand-outs in the polls, and that’s without addressing the question of whether they can keep the SPD from breaking out of the coalition. Beyond that, will it satisfy voters? Merkel is still chancellor, the government remains the same – and the electorate is unhappy with the government, not with whoever is the leader of the CDU.

Merkel’s dimission might be seen as entirely meaningless by the population, and will only continue the uncertainty of whether the longest-serving head of state in Europe can stay in office. Certainly, it won’t calm fears about the Euro, and with the raft of disappointing earnings data from European companies, the outlook for Europe in the short-term continues to remain grim.

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