Merkel’s Party Plays Hardball With Coalition Future in Doubt

(Bloomberg) -- Chancellor Angela Merkel's party told the new leadership of the Social Democrats that there will be no renegotiation of the terms of their alliance and they can quit the governing coalition if they can't accept that.

The SPD on Saturday picked government critics Norbert Walter-Borjans and Saskia Esken to take the party forward over Merkel's Vice Chancellor Olaf Scholz. The new leaders said they will demand policy changes if they are to maintain their support, and their terms will be set out at a three-day SPD conference starting Friday in Berlin.

Read more: Merkel's Exit Edges Closer as Coalition Partner Veers Left

Annegret Kramp-Karrenbauer, head of Merkel's CDU party, said that there's no way they will open up a debate on the coalition deal signed in March last year. “We're not a therapy service for the parties in government,” she said in an interview Monday with ZDF television.

“This new SPD leadership must decide whether they want to stay in this coalition or not,” Kramp-Karrenbauer added. “We made a pledge to the voters. We want to govern on the basis of what was agreed. We are focusing on that and not on the mental state of any coalition partner.”

The rebellion against the SPD establishment pushes Merkel a step closer to the exit after 14 years in power. It also throws up a potential conflict between the chancellor -- keen to see out her final term -- and Kramp-Karrenbauer, who is trying to exert her authority as party leader and may be less willing to compromise as she positions herself to succeed Merkel.

Merkel's chief spokesman, Steffen Seibert, sounded a more conciliatory tone than Kramp-Karrenbauer on Monday while also ruling out any renegotiation of the current deal.

‘Fundamentally Open'

“It's of course good practice that when a coalition partner wants to discuss new proposals, you come together and if you can establish unity, then new initiatives can be taken,” Seibert said at a regular news conference in Berlin. “The chancellor is fundamentally -– and that's the way it should be in a coalition –- open to cooperation and open to talks.”

Ricardo Garcia, euro-region chief economist at UBS AG, said the appointment of Walter-Borjans and Esken could herald demands for “a more ambitious climate-change package, higher minimum wages, broader agreed wages and changes to fiscal rules.”

While not all of these would be acceptable to the CDU, and its Bavarian sister-party the CSU, he still expects the coalition to hold until the scheduled end of the legislature in September 2021. “If snap elections do take place, some market volatility may materialize,” Garcia wrote in a note.

The Social Democrat leadership crisis was triggered in June when chairwoman Andrea Nahles resigned after the party was crushed in elections for the European Parliament. The succession contest reopened a party split between establishment figures and the left, which hoped to rebuild the SPD's credentials with its working-class base.

In comments after their victory on Saturday, Walter-Borjans said the party has no intention of abruptly leaving the coalition. The SPD is more likely to put forward a set of demands, such as abandoning Merkel's balanced-budget stance and raising Germany's minimum wage. He also indicated that Scholz will stay on as finance minister.

‘Sensible Results'

Johannes Kahrs, the SPD's parliamentary caucus budget spokesman and a party moderate, said Monday he does not expect the government to collapse. If a general election is triggered, the party is at risk of finishing in fourth place behind the Greens and the far-right AfD.

“Both sides in the coalition know that we have to find some sensible results for this country,” Kahrs said in an interview with DLF radio.

“The voters have the right to expect that this nation is ruled sensibly until September 2021,” he added. “That there is some disagreement over content is completely acceptable.”

Any breakup would likely be a drawn out process. In addition to a straight vote on leaving the coalition, there will be proposals at the SPD convention setting out conditions for staying, potentially paving the way for prolonged negotiations with the CDU.

Malu Dreyer, who served as an interim SPD leader following the resignation of Nahles, told ZDF Monday that the coalition agreement contains ample wiggle room to adapt to “changing circumstances” if necessary.

“We can't behave as if chaos is breaking out here,” Dreyer said. “It's actually not.”

--With assistance from Patrick Donahue.

To contact the reporter on this story: Iain Rogers in Berlin at irogers11@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Chris Reiter, Chad Thomas

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