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Germany's Merkel Nightmare Victory' push chancellor's political party to regroup

Berenberg Says Germany 's AFD Party Will Make Noise

By Arne Delfs, Rainer Buergin, and Patrick Donahue - Enlarge video

Petroleumworld 09 25 2017

Angela Merkel's political bloc is starting to draw lessons from its electoral losses to the Alternative for Germany party as pressure mounts for the chancellor to win back voters lost to the populist right.

Merkel's Christian Democratic Union-led bloc met in Berlin on Monday in the wake of its defeat of the Social Democratic Party 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 anti-Islam 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 U.S., 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 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 FDP 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 euro dropped 0.5 percent to $1.1896, while the yield on German 10-year bonds slid four basis points to 0.41 percent. The nation's DAX Index of shares added 0.1 percent.

How Merkel Won And Lost at The Same Time: Balance of Power Extra

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 Krumbmueller, a partner at political-risk consultancy OpenCitiz, said by phone. “If that fails, then the only option would be with the SPD. 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 euro area 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 on Monday morning, 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 Europe an 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.

The U.K. Independence Party and France's National Front congratulated the AfD on its success in entering the Bundestag. Petry shared a stage earlier this year with National Front leader Marine Le Pen and Geert Wilders of the Dutch Freedom Party. But where Le Pen and Wilders were defeated in their attempts to win power, the AfD is destined for opposition, since no other party will work with them.

“I'm sure that we don't need a lurch to the right,” Julia Kloeckner, a member of the CDU's executive board, told reporters in Berlin . “We need to address the topics that concern voters in the center of society.”

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