 | One step closer to the end of Merkel? Germany’s centre-left SPD will announce the result of the first stage of its leadership contest this Saturday. If finance minister Olaf Scholz does not make it into the November run-off, the risk that a battered SPD may leave the coalition with Angela Merkel’s CDU/CSU in early 2020 and end her political career could rise significantly. We currently put this risk at 30%. |
| Tough times for the SPD: The SPD has been a junior partner to Merkel’s CDU/CSU in the Berlin government for 10 of the past 14 years. This has not stopped the erosion of support for the once venerable party (see chart). As a result, the SPD is torn between a desire to shape policies in government and to renew itself in opposition. |
| A quirky race: Six female/male duos are now vying to lead the SPD. After a series of regional party conferences, the two of the most left-wing pairs (Nina Scheer/Karl Lauterbach and Gesine Schwan/Ralf Stegner) seem unlikely to make it into the run-off for the two best-placed duos. The result of the final vote will be published on 30 November. On 6-8 December, an SPD party congress will formally install the new leaders and discuss whether to stay in government or not. |
| In or out? We can rank the four duos with a good chance of making it into the run-off by their apparent inclination to stay in government: First comes finance minister Scholz with Klara Geywitz, followed by Petra Köpping/Boris Pistorius ahead of the more youthful Christine Kampmann/Michael Roth and Saskia Esken/Norbert Walter-Borjans. While an online poll from early October showed Scholz/Geywitz trailing behind the other three, a 35% plurality of SPD members expect them to win. They benefit from name recognition and the promise of being safe pairs of hands in unsteady times. Esken/Walter-Borjans and Kampmann/Roth seem to favour a looser fiscal policy than Scholz. But as they would probably leave the government, they would not be able to implement such plans. |
| What if? If Scholz/Geywitz unexpectedly drop out on Saturday and the SPD later on elects a duo that takes the SPD out of government in late 2019 or early 2020, Merkel’s CDU/CSU would try to form a new coalition with the Greens and the small FDP. However, the Greens – riding high in opinion polls – would likely insist on new elections first. |
| Life after Merkel: A new government after potential elections next spring would no longer be led by Merkel. It would probably be a CDU/CSU coalition with the Greens led by CDU chairwoman Annegret Kramp-Karrenbauer or, possibly, her rival Friedrich Merz. Such a coalition would give policies a green tinge (ie faster exit from coal, higher price for CO2 emissions) but not shift economic, fiscal, foreign and European policies by much. |
| The tail risk: Snap elections carry the risk of ending with an alliance of the Greens with the SPD and the Left Party. In polls, the three are just 3ppt short of a majority. Such a left-wing coalition may re-regulate the German economy significantly. If so, the damage to trend growth would likely overshadow any modest short-term fiscal boost that such an alliance may enact. We currently put the risk of such an outcome at 10%. |
Holger Schmieding
Chief Economist
+44 20 3207 7889
holger. schmieding@ berenberg. com
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