Merkel’s Euro Debt Crisis Gambit Ends in Election Defeat in Her Home State

German Chancellor Angela Merkel’s party suffered its fifth election loss this year after she failed to sway voters in her home state with a campaign based on her handling of the euro-area debt crisis.

The Social Democrats, the main opposition party nationally, took 35.7 percent to win yesterday’s election in Mecklenburg- Western Pomerania, preliminary results show. Merkel’s Christian Democratic Union had 23.1 percent, its worst tally since voting began in the state in 1990 after reunification that year between West Germany and the former communist East Germany.

The result in the eastern state where Merkel’s election district is located means her national coalition has been defeated or lost votes in all six German state elections so far this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts.

“Merkel’s problem is that she fails to generate confidence in her policies and those of her coalition partner,” Gero Neugebauer, a political science professor at the Free University in Berlin, said by phone. “It’s about the consistency of her statements” on bailouts for indebted euro countries.

Merkel took her crisis-fighting strategy directly to voters in eight campaign stops over 18 days, telling election rallies of the need for euro-area countries to step up deficit cuts and reiterating her rejection of joint euro bonds. She canceled her appearance at the final CDU rally two days ago after the death of her father, aged 85.

‘Hands Full’

“We’re right in the middle of a debate about the euro and its future,” Merkel told reporters in Berlin today, defending her choice of campaign theme. “People are right to expect solutions. So we have our hands full. At the same time, you can’t turn every state election into a bellwether for national elections because then you won’t get anything done.”

The euro fell for a fifth day against the dollar and was down 0.6 percent to $1.4113 as of 2:56 p.m. in Berlin. Germany’s DAX index (DAX) retreated to the lowest level since November 2009, and German bunds advanced, with two- and 10-year yields dropping to record lows amid increased demand for the euro region’s safest assets.

‘Lost the Feel’

While “people are worried about the euro and their savings losing value,” Merkel is using “the wrong words” by talking about euro bonds, Manfred Guellner, head of the Berlin-based Forsa polling group, said by phone. “That’s a technocratic, abstract idea,” he said. “Her problem right now seems to be that she’s not finding the right tone. Somehow, she has lost the feel for what moves people.”

Neugebauer said that emphasizing euro bonds during her campaign speeches was “strategically dumb” because it’s a theme that unsettles voters.

The anti-capitalist Left Party took 18.4 percent in the state, making it a potential candidate to enter government as junior partner to the SPD. The Social Democrats have ruled Mecklenburg-Western Pomerania, which borders the Baltic Sea to the north and Poland to the east, in coalition with Merkel’s CDU since 2006. Previously, the SPD governed the state with the Left from 1998 to 2006.

The Greens took 8.4 percent to enter the state parliament for the first time, while the Free Democratic Party, Merkel’s coalition partner in the national government in Berlin, had 2.7 percent, dropping below the 5 percent threshold needed to win seats in the state parliament in Schwerin. The anti-foreigner NPD took 6 percent.

Politics ‘Reshuffled’

The Greens result means that the anti-nuclear party is now represented in all 16 German state parliaments. The Free Democrats lost all their seats for the fourth time this year.

The CDU’s losses are partly “due to dissatisfaction with politics in Berlin,” Karl-Rudolf Korte, a political scientist at the University of Duisburg-Essen, said in a ZDF television interview. “The victory of the Greens shows that the political center is being reshuffled.”

Merkel’s message of fiscal prudence was targeted at one of Germany’s economically weakest areas. The local economy grew 0.3 percent last year, the least of any state, even as national gross domestic product expanded 3.6 percent, according to the Federal Statistical Office.

Even so, under the so-called grand coalition of Prime Minister Erwin Sellering’s Social Democrats and the Christian Democrats, unemployment has dropped from 18.2 percent in August 2006, then the highest in Germany, to 11.5 percent last month, the nation’s third-highest. The state hasn’t run a budget deficit since 2005, slashing costs by reducing government services as the population dwindles.

SPD Gain

The SPD reaped the benefit at the ballot box, increasing its share of the vote as Merkel’s CDU declined.

“Naturally, the CDU is disappointed about the result,” Peter Altmaier, the chief whip for Merkel’s Christian Democratic bloc in Berlin, said on ARD television. “We have a lot of challenges -- think of Europe, think of the international economic and currency crisis.”

Polls suggest the coalition parties will also struggle at the last state election of the year, in Berlin on Sept. 18.

A poor result may force Merkel’s Free Democratic coalition partner to take a harder line on euro-area bailouts, said Carsten Brzeski, an economist at ING Group in Brussels.

“Landslide losses” for the coalition parties in both Mecklenburg-Western Pomerania and Berlin “could lead to new inner-party unrest,” Brzeski said in a Sept. 2 note. With the FDP “searching for a clear political course” as it struggles in the polls, “an attempt to gain profile on the sovereign debt issue should not be excluded.”

Merkel said the government has work to do to help stem the debt crisis and prevent a breakup of the euro region, which “would start a domino effect that would be extremely dangerous for our currency system.”

“The fall won’t be boring,” she said.

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Germany's chancellor Angela Merkel

Michele Tantussi/Bloomberg

Germany's chancellor Angela Merkel's message of fiscal prudence was targeted at one of Germany’s economically weakest areas.

Germany's chancellor Angela Merkel's message of fiscal prudence was targeted at one of Germany’s economically weakest areas. Photographer: Michele Tantussi/Bloomberg

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