German SPD picks government critics as leaders in blow to Angela Merkel

Newly elected co-leaders of the German Social Democratic Party (SPD), Norbert Walter-Borjans and Saskia Esken celebrate on stage. PHOTO: EPA-EFE

BERLIN (BLOOMBERG) - Germany's Social Democrats elected a leadership that favours exiting the coalition with Chancellor Angela Merkel, increasing the risk of an early end to her tenure.

Norbert Walter-Borjans, the 67-year-old former finance minister of North Rhine-Westphalia, and lawmaker Saskia Esken beat Finance Minister Olaf Scholz and Brandenburg state politician Klara Geywitz with 53 per cent against 45 per cent of the votes.

Investors won't be happy with the result, which could trigger a prolonged phase of political uncertainty in Germany.

The victory of Walter-Borjans and Esken, who favour taxing the rich, boosting welfare spending and abandoning Germany's long-standing policy of a balanced budget, will certainly weaken pro-government forces.

The party will formally debate exiting the coalition with Merkel's Christian Democratic-led bloc at a Dec 6-8 convention.

Questions over Germany's leadership could hamper the nation's response in a possible economic crisis and overshadow its presidency of the European Council in the second half of next year.

Growth is slowing to an estimated 0.5 per cent this year, one-fifth the rate of what it was in 2017.

After a tumultuous year in which the SPD and Merkel's Christian Democrats both faced intense power struggles, Germany's political and business elites had hoped for a period of calm and continuity.

Indeed, Merkel this week had made an unusual plea to see the alliance through to 2021, saying there was still much to be done.

Scholz too had argued that his party is achieving more of its objectives in government than it ever could in opposition, even it needed to compromise.

But Walter-Borjans managed to tap the dissatisfaction of many Social Democrats who feel their party has abandoned its working-class origins and should abandon an alliance with conservatives.

But breaking up may become a drawn out process, with last-minute attempts to patch things up. In addition to a straight vote on leaving the coalition there will be proposals at the convention setting out conditions for staying, potentially paving the way for prolonged negotiations.

During the campaign Esken and Walter-Borjans said their price for staying includes billions of euros of government investment in climate and education, a €12 (S$18) per hour minimum wage, and wage negotiations that should be made obligatory for employers.

Such demands are seen as unacceptable by Merkel's CDU and its leader, Annegret Kramp-Karrenbauer told delegates at a convention in Leipzig last week that she would refuse to renegotiate the coalition agreement that the two factions completed in March 2018.

Even if there's no agreement, the Social Democrats are unlikely to jump ship overnight.

"Naturally the SPD will ensure there will be no chaos," Esken said recently.

"Should the CDU not move on these important issues, we'll recommend the party make an orderly retreat," she told Bild newspaper last weekend.

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