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Election of new CDU leader suggests German policy continuity

5 years ago
in Features, Opinions
2 min read
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Armin Laschet - norvanreports

Armin Laschet - norvanreports

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The appointment of Germany’s Christian Democratic Party’s (CDU) new leader is consistent with our view that broad policy continuity on key fiscal and European issues is likely after September’s national elections, Fitch Ratings says. But precise policy choices will depend on the election outcome and in the near term remain highly dependent on the duration and severity of the coronavirus pandemic.

Armin Laschet, the prime minister of North Rhine-Westphalia, was elected leader of the governing CDU by delegates at a virtual party conference on 16 January, defeating Friedrich Merz in a run-off vote. Norbert Roettgen (chairman of the Bundestag’s foreign affairs committee) was eliminated in the first round.

Laschet positioned himself as the continuity candidate during the leadership contest triggered by the resignation of Annegret Kramp-Karrenbauer, who succeeded Angela Merkel (of whom Laschet is a strong ally) as CDU leader in 2018. A key challenge will be to bridge divisions between his centrist supporters and the party’s conservative wing, which favoured Merz. But the CDU’s endorsement of Laschet signals that its economic and fiscal policies should remain broadly in line with those of Merkel, as will its position on European and foreign affairs.

Winning the leadership puts Laschet in a strong position to become the joint candidate that the CDU and its centre-right Bavarian sister party, the Christian Social Union (CSU), will field for the chancellorship. But this is not an automatic appointment and he would have to gain support for his candidacy from the CSU at a time when its leader, Bavarian premier Markus Soeder, is performing strongly in opinion polls. A decision is expected in March and will be influenced by regional elections in Baden-Wuerttemberg and Rhineland-Palatinate, where success for the CDU would increase Laschet’s chances.

The national elections on 26 September will be the first in 16 years without Angela Merkel as the joint CDU/CSU candidate. National polls suggest solid support for the CDU/CSU alliance and the Greens that would give a comfortable majority in the Bundestag to both a coalition between CDU/CSU and Greens or a repeat of the current CDU/CSU-led coalition. But voter preferences may change and Merkel’s absence could make this election less predictable.

Germany’s ‘AAA’ sovereign rating is not predicated on any particular election outcome. Our long-held view is that the fairly strong cross-party consensus over domestic policy direction and major European issues will ensure fiscal and economic continuity over the medium term.

Budget surpluses meant that public finances were strong pre-pandemic, and the 2020 budget deficit was 4.8% of GDP (on a cash flow basis), according to preliminary data. Our current 2020 deficit on an accrual basis is 6.4% of GDP narrower than most other western European sovereigns. Real GDP declined by 5.0% in 2020, less than the EU average.

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But the second wave of the pandemic and the slow start to the vaccination programme present significant near-term risks to growth and fiscal outturns. Finance Minister Olaf Scholz said recently that fiscal support to companies and employees will continue as long as necessary and that Germany’s strong initial fiscal position facilitated this.

The resumption of fiscal support measures could lead to a wider budget deficit in 2021 than our latest published forecast, although a strong GDP rebound from mid-2021 should support the fiscal position.

Source: FitchWire
Via: norvanreports
Tags: Angela MerkelArmin LaschetGerman policy continuitynew Christian Democratic Party's (CDU) leader
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