Chancellor Merkel’s worries are in Hesse, not Bavaria

It is not only Mrs May of the UK that is having a horrible time dealing with Brexit and mutinous cabinet ministers, but the German Chancellor’s grip on her Grand Coalition Partners is now very much in danger.

As the dust settles after the pounding of the coalition partner Christian Social Union (CSU) took in its home bastion of Bavaria, the besieged Chancellor Angela Merkel is now facing even more uncertainty with another key test of her policies, especially on immigration, in the state of Hesse.

The most important political takeaway from the Sunday 14 October results was not the (generally expected) drop in the CSU or even the rise of the Greens as Bavaria's second largest party. It was how badly the Social Democrats (SPD) fared. SPD support, which is already barely polling 16 percent at the federal level, plunged by more than half to barely 9.6 percent in the Bavarian vote, and that significantly raises the stakes for the SPD in the state election in Hesse on October 28.

ALSO READ: Back to Brexit square one: No deal is better than a bad deal

By all counts, the SPD is not expected to win in Hesse, but if it polls less than the near 29 percent it picked in the last Hesse election, it is very likely to foment an open internal party revolt against the current party leadership under Andrea Nahles, and set in motion a move to withdraw from the ruling Grand Coalition in Berlin in order to start a long process of rebuilding its political base and identity. No politician, however lofty their loyalties, want to be hitched to losing partners.

Even if the SPD revolt drags out rather than igniting immediately, while it would keep the fragile Grand Coalition intact -- none of the main political parties, be it the Christian Democrats CDU , the CSU, or the SPD, want an early federal election -- it will further weaken Chancellor Merkel’s hand in negotiating key European Union or foreign policy issues and could still trigger a challenge to Merkel's leadership at the CDU party conference in December.

And the potential fallout from Hesse on German coalition politics could have major implications for broader, pan-Euro issues critical to markets, including the European Council’s stance towards the government in Rome, the populist revolts and European Parliamentary elections in May, and the upcoming succession battles for the leadership of the ECB and European Commission.

Seismic European changes

Just like the snail paced Brexit talks are laying bare the tensions in Europe among populist and more liberal parties, so a collapse in the German Grand Coalition will also set in motion some seismic European changes.

The CSU’s 37.3 percent, a freefall from its usual 50 percent plus polling, was the worst in its home state since 1950, and will be forcing it into only its second governing coalition since 1962, probably with the Free Voters, a breakaway CSU faction that polled 11.6 percent.

The media made much of the doubling in the Green vote to 17.8 percent and a similar surge on the opposite end of the political spectrum for the right wing anti-immigration party AfD to 10.7 percent, enough to put them into the state parliament for the first time.

The more important impact of the Bavarian results is how the CSU adjusts to its erosion of support in its home state and also learn from the mistake s of the strategies adopted to remain in power.

ALSO READ: Back to Brexit square one: No deal is better than a bad deal

The fate of Horst Seehofer, Merkel’s interior minister who tried to play a tough anti-immigration card to bolster the CSU against the rise of the AfD as well as boost his own standing within the CSU, will be determined by the internal CSU discussions in the next week or so, but following the Bavaria election disaster one would suspect he will take the fall by resigning from the cabinet.

The most immediate lesson taken on board by the CSU leadership is that its late in the day ramping up of the anti-immigration issue badly backfired, sending its more moderate wing to the Greens and its more rigid right wing to the AfD.

However, greater attention should be focused on the repercussions of the Bavarian electoral outcome for the SPD, without whose participation Chancellor Merkel's Grand Coalition would collapse. A CDU-Green coalition government currently rules Hesse.

Stunning result

Should Hesse turn in a stunning result, with the CDU actually losing its standing as the largest party in the wealthy state, home to the Frankfurt financial centre, it would almost certainly trigger a serious challenge to Merkel’s party leadership – just last month the CDU deputies in the Bundestag ousted her long serving fraction leader Volker Kauder.

The latest polls, however, for now suggest a loss of support for the CDU, but that it should still lead the negotiations to form another coalition government, most likely a repeat with the Greens. As such, the polling results to keep a close eye on are for the SPD, currently polling just 23 percent or so compared to its 28.8 percent results five years ago.

If its support collapses even further, say, below 20 percent, it could very well trigger an open revolt of the party’s rank and file against the party leadership led by Nahles and Olaf Scholz, currently serving as Merkel's finance minister. But politicians will always be politicians and Nahles tried her best to blame the SPD's rapidly declining political fortunes to the bitter infighting between the CDU and the CSU.

ALSO READ: Can the global financial crisis of 2008 happen again?

A further erosion of the party’s political support – which has historically polled 40 percent plus in the German federal elections – would drive it into a fading role in Germany’s political left of centre, supplanted more or less by the Greens as Germany’s more muscular centrist party; all the more reason for the embattled SPD to withdraw from the Merkel-led government and start a long rebuilding in opposition.

We suspect that argument will become overwhelming within the SPD. Whether the SPD does indeed take steps down that road, and how soon, and indeed, whether it would force snap elections is unclear and a next move on the German political chessboard. But Hesse is most certainly the next risk point to be monitored in terms of German, and EU, political stability.

For the Gulf, another key European economic giant about to become politically split between a pro and liberal Europe and inward looking Germany only factions is not going to help in the wider multi-lateral international development and financial stability cooperation.

Any future Greece like bailouts following the 2008 global financial crisis, driven by Germany, will become more difficult to receive support.
________________________________
Dr. Mohamed Ramady is an energy economist and geo political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia and co-author of ‘OPEC in a Post-Shale world – where to next ?’. His latest book is on ‘Saudi Aramco 2030: Post IPO challenges’.