Sept. 28 (Bloomberg) -- German Chancellor Angela Merkel's Bavarian allies in the Christian Social Union began a two-day conference to elect a successor to Edmund Stoiber, who is quitting as both party leader and state prime minister.

Stoiber, 66 today, is Germany's longest-serving regional premier. He governed Bavaria for 14 years before party members forced him to announce his retirement in January. Polls indicate delegates to the Munich conference will tomorrow back Bavarian Economy Minister Erwin Huber to take over as party leader.

The CSU's dominance in Bavaria, home to eight of the 30 companies in the benchmark DAX index, provides a regional powerbase for Merkel's Christian Democratic Union. The CDU doesn't campaign in Bavaria and the two parties contest national elections on one ticket. Yet while Merkel's ratings have soared, Stoiber's have slid as the CSU seeks to extend its 50-year rule in elections next year.

``This handover is necessary and inevitable to preserve the fortunes'' of the smallest party in Merkel's three-way coalition, Peter Loesche, a professor of political science at the University of Goettingen, said in a telephone interview. ``As voters turn their backs on the main parties, Merkel needs to count on a stronghold such as Bavaria to fight the 2009 federal election.''

No to Berlin

By December last year, criticism was growing within the CSU of Stoiber's refusal to make way for a fresh face. His fortunes began to decline after he first indicated he would join Merkel's national government in Berlin in 2005, then changed his mind.

Polls showed the party risked losing the overall majority it's held for 25 years in the Bavarian parliament if he stayed on as its No. 1 candidate in the state election scheduled for Sept. 28, 2008.

At the last state election in 2003, Stoiber's party won almost 61 percent of the vote, just short of its best post-World War II result of 62 percent in 1974. It achieved that tally by citing Bavaria's economic success, as manifested in the only triple-A credit rating by Standard & Poor's for any of Germany's 16 states.

`Our Legacy'

``It fills me with pride to say that Bavaria and our party are both in very good condition,'' Stoiber told the 1,006 delegates in a speech opening the conference, after which he received a five-minute standing ovation. ``This is our legacy; our state is fully prepared for the future.''

Even so, Bavaria, Germany's largest state by size and the country's second most populous, is no longer the powerhouse it was.

The gross domestic product of the northeastern state of Mecklenburg-Western Pomerania grew even faster in the first half of 2007 than that of Bavaria, whose economy would be the eighth biggest in the European Union if it were independent, the Tagesspiegel newspaper reported on Sept. 25.

Stoiber, who stands down as party leader immediately after the vote tomorrow, relinquishes his role as state premier on Oct. 9, making way for the state interior minister, Guenther Beckstein, 63, who will become Bavaria's ninth prime minister since 1945.

Three-Way Contest

For the CSU leadership contest, delegates in Munich can choose between Huber and two other candidates: Agriculture Minister Horst Seehofer, 58, and Gabriele Pauli, 50, a local- government leader from the city of Fuerth who rose to prominence when she led calls for Stoiber to go.

Yet, in a party that orders crucifixes to be hung in Bavarian classrooms and plans to introduce cash benefits for parents who raise their toddlers at home, CSU members are likely to ``show no respect'' for Seehofer, after he admitted earlier this year to fathering a child by his 32-year-old mistress in Berlin, said Loesche.

Similarly, a proposal last week by Pauli to review marriages after seven years and allow for automatic dissolution to help save divorce-litigation costs ``has effectively buried her career prospects in a party as conservative as the CSU,'' Loesche said.

Forty-eight percent of 1,143 party supporters back Huber, while 30 percent favor Seehofer and 6 percent said they would vote for Pauli to take the top post, a poll by FG Wahlen conducted between Sept. 24 and Sept. 26 showed.

The divisions within the CSU that have surfaced over Stoiber may take some time to heal, according to Loesche. It's the first open ballot for the party leadership since 1955.

``The law of nature is to replace party leaders after election defeats,'' he said. ``As the CSU never loses elections, the new leader may have some work to do to win everyone's support.''

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net.

Last Updated: September 28, 2007 10:18 EDT