Merkel’s Reluctant Partner May Shy Away From Coalition Showdown

(Bloomberg) -- Angela Merkel's disgruntled coalition partner is likely to respect its new leadership's calls for caution rather than push for a showdown that could topple the German chancellor, for now.

The Social Democrats picked coalition critics Norbert Walter-Borjans and Saskia Esken to take their party forward last weekend and gather for a three-day national conference starting Friday in Berlin. After members registered their frustration with the party's situation in the leadership ballot, the roughly 1,000 delegates will likely give the duo a mandate to negotiate a way forward with Merkel's CDU-led bloc rather than demand an abrupt end to the alliance.

“The delegates won't be in the mood to stir up trouble,” said Holger Schmieding, chief economist at Berenberg Bank. “The risk that the SPD will decide at its party convention to pull the plug on the grand coalition has been averted,” he said, acknowledging that some risk remains.

The party's new leadership -- which defeated a tandem led by coalition loyalist Olaf Scholz, Merkel's finance minister -- can count on backing from the two most powerful factions of government critics.

Walter-Borjans, 67, former finance minister from North-Rhine Westphalia, hails from the biggest and most influential SPD region, and the working-class state may be satisfied for now by getting its man in power.

Similarly, the 58-year-old Esken has close ties to the SPD's youth organization, a vocal opponent of the coalition with Merkel, which officially backed the pair.

Risky Bet

While the willingness to engage with Merkel's Christian Democrats offers the government a lifeline, the SPD remains a reluctant ally, and pressure on Walter-Borjans and Esken to come up with a clear plan will be intense.

Ending the coalition could lead to a snap election, a risky bet for a party whose support has slumped to about 15% in recent polls, roughly on par with the far-right AfD.

The latest INSA survey for Bild newspaper published Monday showed support for the SPD fell one percentage point to 13.5% compared with the previous week. The poll of 2,060 people was conducted between Nov. 29 and Dec. 2.

Voting intentions also indicated that Merkel's bloc, stable on 26.5%, would be able to form a coalition with the Greens, who lost half a point to 21.5%.

Much of the discussion for the SPD in coming days will center around the conditions it will attach to stay in government. Top officials will meet Tuesday to set out a road map for the upcoming convention.

Walter-Borjans and Esken have been calling for wide-ranging concessions from the CDU and its Bavarian sister party. The demands have included a minimum wage of 12 euros ($13.30) per hour, abandoning the balanced-budget policy to spend more on infrastructure and education, and reopening the recently agreed climate package to quadruple the price of carbon-dioxide. The conditions are seen as crossing red lines for the conservative bloc.

Annegret Kramp-Karrenbauer, head of Merkel's CDU party, took a hard line on the SPD's desire for concessions, saying “we're not a therapy service for the parties in government.” But Merkel's chief spokesman, Steffen Seibert, sounded a more conciliatory tone, saying it's “good practice” to be open to compromise with a partner.

At its convention the SPD is also expected to seek some middle ground, leaving conditions for continuing the alliance sufficiently vague. That leaves the embattled party hoping for the best.

“Both sides in the coalition know that we have to find some sensible results for this country,” Johannes Kahrs, the SPD's parliamentary caucus budget spokesman and a party moderate, said in an interview Monday with Deutschlandfunk radio. “That there is some disagreement over content is completely acceptable.”

--With assistance from Iain Rogers.

To contact the reporter on this story: Birgit Jennen in Berlin at bjennen1@bloomberg.net

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

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