Merkel’s bloc regroups after ‘nightmare victory’

With the Social Democrats opting to go into Opposition, Merkel’s options appear limited to a 3-way alliance

by BLOOMBERG

BERLINAngela Merkel’s (picture) political bloc is starting to draw lessons from its electoral losses to the Alternative for Germany (AfD) party as pressure mounts for the chancellor to win back voters lost to the populist right.

Merkel’s Christian Democratic Union (CDU) -led bloc met in Berlin yesterday in the wake of its defeat of the Social Democratic Party (SDP) while falling to the worst result since 1949. “The chancellor’s nightmare victory” was the verdict of Germany’s best-selling Bild newspaper.

The result saw a hollowing out of support for the two main parties and a surge for the antiIslam AfD in a clear rebuke to Merkel’s open-doors refugee policy. While there are echoes of the anti-immigration debate current across Europe and in the US, where President Donald Trump’s administration added three countries to a proposed travel ban that opponents say is directed at Muslims, the AfD is still a long way from exercising power in Germany.

The bigger issue for Merkel, 63, is forging a coalition to allow her to govern in Europe’s biggest economy over the next four years. With the Social Democrats opting to go into opposition and not renew their coalition with her bloc, Merkel’s options appear limited to a three-way alliance with the Greens and Free Democrats that is untested at national level.

Daniel Guenther, who has presided over the same three-way hookup in Schleswig-Holstein state since the summer, said the hurdles to forming such a coalition at federal level are higher.

“There are a few topics where we’re far apart: Security, integration, refugee policy,” he told reporters as he arrived for the CDU meeting. As a result, “it’s not a given” that it’ll work, he said.

Merkel’s Christian Social Union (CSU) Bavarian allies, vocal critics of her refusal to set an upper limit on migrant arrivals policy during the refugee crisis of 2015-2016, urged the chancellor to shore up her

right flank to stop support bleeding to the AfD. After losing votes to the AfD in its home state, the CSU will be “prickly” in coalition talks, “as will the resurgent Free Democratic Party and the left wing of the Greens,” said Holger Schmieding, chief economist at Berenberg.

“Coalition talks will be difficult, they always are,” he said. “But Merkel is good at bridging such differences.”

The parties are regrouping after Sunday’s surprise election delivered victory for Merkel but raised question marks over her fourth-term agenda. The euro declined on the prospect of prolonged coalition talks, with six parties poised to enter the lower house, the Bundestag, for the first time since 1953.

The single currency dropped 0.6% to US$1.1877 (RM4.99), while the yield on German 10-year bonds slid four basis points to 0.41%. The nation’s DAX Index of shares added 0.2%.

The CEOs of two of Germany’s biggest companies, Joe Kaeser of Siemens AG and Volkswagen AG’s Matthias Mueller, issued statements expressing their concern at the election result.

Kaeser said the AfD’s elevation to the Bundestag was a defeat for German “elites” that had to do more to convince the party’s voters. Mueller spoke of his shock that the “populist, right-wing, xenophobic” AfD had scored so highly. “Germany has been politically and economically successful because we are a tolerant, cosmopolitan and internationallyminded country,” Mueller said. “This is something we must keep on fighting for.”

For all their ideological differences, both the Greens and Free Democrats want to be in power, so they “will make an effort to agree,” Famke Krumb mueller, a partner at political-risk consultancy OpenCitiz, said by phone. “If that fails, then the only option would be with the SDP. That would force their hand, since the only other option is a new election.”

Forging a coalition that enables Merkel to govern is likely to take months. Once a government is in place, she will face huge global expectations — from shoring up the euroarea together with France, to setting Europe’s tone in its dealings with Trump, and tackling the diesel-emissions crisis that threatens Germany’s dominance in producing luxury cars.

Domestically, she will face a noisy opposition in the AfD. It immediately fell into a bout of infighting yesterday, with its co-chairwoman, Frauke Petry, announcing that she won’t be part of the party’s caucus.

Founded as an anti-euro party opposed to financial bailouts for Greece and other southern European nations, the AfD narrowly missed out on Bundestag seats four years ago. With new leadership and a campaign focused on immigration — the party demands shutting the border to new asylum seekers and calls Germany’s Muslim minority “a great danger to our state” — it succeeded in tapping into a well of discontent with Merkel’s policies. — Bloomberg