German President Wulff Quits Amid Corruption Allegations in Blow to Merkel

German President Christian Wulff resigned amid the threat of a legal probe into corruption allegations, delivering a blow to Chancellor Angela Merkel that risks distracting her from the euro-region debt crisis.

Wulff is the second German president to quit in less than two years, forcing Merkel to find a fresh candidate with cross- party support for the largely ceremonial post. Merkel canceled a planned trip to Rome today as Wulff’s intentions became clear, and instead held a conference call on the crisis with Italian Prime Minister Mario Monti and Lucas Papademos of Greece.

Wulff, 52, a former deputy leader of Merkel’s Christian Democratic Union party, was picked by the chancellor to replace the previous incumbent, Horst Koehler, after Koehler’s surprise resignation in May 2010. Wulff was elected by a special national assembly on June 30 of that year.

His decision to quit “is a huge setback for Merkel,” Gerd Langguth, a Merkel biographer and political scientist at the University of Bonn, said in a phone interview. “No one could have imagined the extent of this. No one could have imagined that this would take on such dimensions.”

Merkel said that she will consult in the coming days with opposition political leaders to try and indentify a successor candidate to put to the assembly, which will meet within 30 days. She is due to discuss the presidential succession with her fellow coalition party leaders in Berlin tomorrow. Potential candidates mentioned in the German media include Labor Minister Ursula von der Leyen and Bundestag President Norbert Lammert.

‘Rule of Law’

Merkel said that she “deeply regrets” Wulff’s resignation, though respected the decision. The development shows “the strength of our rule of law that treats everybody equally, irrespective of position,” she told reporters.

The resignation is a diversion for Merkel as she seeks to steer Europe’s response to the debt crisis that China has said threatens to trigger systemic risks to the global economy. With a second Greek bailout hanging in the balance, Merkel, Monti and Papademos expressed optimism after their call that an agreement on Greece can be reached at a Feb. 20 meeting of euro-area finance ministers, Monti’s office said in an e-mailed statement.

The German president’s resignation is unlikely to affect the role of Europe’s biggest economy in the crisis, and might even result in “a small positive,” Christian Schulz of Berenberg Bank in London said in a note.

‘Additional Tools’

“The drive for a candidate supported by all major parties shows the current unity in German politics on major political questions,” Schulz said. “The centre-left opposition supports Merkel’s European crisis management and is even more open to additional tools including Eurobonds.”

Wulff’s role was largely confined to representing Germany abroad until allegations relating to a private home loan during his time as state prime minister of Lower Saxony were aired in Germany’s best-selling Bild newspaper on Dec. 13, then followed up in Der Spiegel magazine. Within days, he was facing growing scrutiny of his financial affairs including vacations at the homes of business people, and calls from the opposition to quit.

Prosecutors in Lower Saxony, which Wulff governed from 2003 to 2010, submitted a request to the lower house of parliament, the Bundestag, to have the president’s immunity lifted. They want to open an official probe after finding “initial evidence to suppose” the acceptance of illicit favors, the prosecutor’s office in the state capital of Hanover said in a statement on its website today.

“Developments in past days and weeks have shown that this confidence and my ability to act are lastingly damaged,” Wulff told reporters at the presidential palace in Berlin today, as he announced his resignation.

‘Legally Correct’

“As far as the upcoming legal procedures are concerned, I’m convinced that it will lead to a complete discharge. I’ve always been legally correct in my offices,” he said. “I have made mistakes but I have always been sincere.”

Pending the Federal Assembly convening, Bavarian Premier Horst Seehofer, who holds the rotating chair of the upper house of parliament, the Bundesrat, will serve as interim president. Seehofer also leads Merkel’s Christian Social Union ally, one of three coalition parties together with her CDU and the Free Democratic Party, led by Economy Minister Philipp Roesler.

Merkel is now forced to devote her attention to lobbying for support for a fresh candidate among the 1,240-member Federal Assembly of lawmakers and state delegates that elects the president, having lost ground after regional election defeats throughout 2011 that she and other party officials blamed on the crisis.

Diminished Majority

The chancellor may struggle to push through a favored candidate compared with June 2010, when it unexpectedly took three votes to elect Wulff. The chancellor’s majority in the assembly has since narrowed to as little as two seats from 21 seats at the last vote, according to electoral website wahlrecht.de.

What’s more, the main opposition Social Democrats and Greens have indicated that they want to revive the candidacy of Joachim Gauck, a Protestant pastor and former East German dissident whom Wulff defeated for the presidency at the third ballot. Polls at the time showed Gauck to be the more popular candidate among the general public.

“If she picks a recognized personality she will survive this without damage,” Langguth said. “The question is what possibilities she has to replace” Wulff.

Island Vacation

Prosecutors have been looking into whether they need to question Wulff over payments by businessman David Gronewold in connection with a vacation on the German island of Sylt in 2007.

Last month, an office in the president’s Berlin residence was searched by prosecutors as part of a separate investigation of his former spokesman, Olaf Glaeseker. The workplace was raided because Glaeseker had left private material there that the president’s office couldn’t hand over.

German financial regulator Bafin is meanwhile reviewing whether Wulff violated capital market rules in the wake of Porsche SE’s failed bid to take over Volkswagen AG (VOW), Der Spiegel reported today. Wulff may have learned in February 2008 that Porsche was planning the bid and Bafin is reviewing whether he may have had to disclose that fact to the markets, the magazine reported, without saying where it got the information. As the prime minister of Volkswagen’s home state of Lower Saxony, he was a member of the carmaker’s supervisory board at the time.

Bafin spokeswoman Dominika Kula declined to comment, adding that the regulator has a rule not to comment on any of its investigative work. Wulff’s lawyer Gernot Lehr declined to comment when contacted by telephone today.

The resignation calls into question Merkel’s judgment, leaving her “somewhat diminished,” Sony Kapoor, managing director at Re-Define, a firm that advises governments on economic policy, said in an interview with Bloomberg Television’s Maryam Nemazee.

Even so, Merkel is “still very much reigning as the queen of Europe for now,” Kapoor said. “There is no ready challenger to the German power play in the euro crisis today.”

To contact the reporters on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net; Karin Matussek in Berlin at kmatussek@bloomberg.net.

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Anthony Aarons at aaarons@bloomberg.net

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