Merkel Says Crisis Policy Unaffected by State Election Defeat

Chancellor Angela Merkel stood firm on her debt-crisis policy after her party’s election defeat in Germany’s most populous state, saying voters didn’t reject budget austerity for the euro area.

While offering to hold talks with opposition parties in a bid to ensure passage of the fiscal pact through the German parliament, Merkel told reporters in Berlin that that her policy on “the issues in Europe that await us” will be unaffected.

The debt crisis “undoubtedly is an extremely virulent issue,” Merkel said. “So it’s precisely on this front that our work in Europe isn’t affected. There is no conflict between solid budget policies and growth. This will continue to guide us in our discussions in the weeks ahead.”

Merkel was responding to questions on a possible change of policy direction after her Christian Democratic Union suffered its worst post-World War II result in North Rhine-Westphalia in a regional election won by the main opposition Social Democratic Party. Merkel made at least nine campaign appearances in which she stressed the need to clamp down on spending.

The result may embolden the Social Democrats as they align with French President-elect Francois Hollande in an anti- austerity front pressing for steps to spur economic growth to counter the crisis, according to Thomas Costerg, an economist at Standard Chartered Bank in London.

Hollande is due in Berlin tomorrow immediately after his inauguration in Paris for what Merkel’s spokesman, Steffen Seibert, said would be an “exchange of views” rather than a policy-setting meeting.

‘More Assertive’

Also tomorrow, SPD Chairman Sigmar Gabriel will join Peer Steinbrueck and Frank-Walter Steinmeier, respectively the former finance and foreign ministers in Merkel’s first-term government, to brief press on their ideas to stimulate growth and employment to help escape the debt crisis.

The SPD have “the wind in their back to ask for more concessions and more measures to stimulate growth,” Costerg said in an e-mailed comment, adding that Merkel needs SPD support to pass the fiscal pact in parliament. As a result, after backing Merkel’s crisis-fighting policy to date, the SPD “will probably become more assertive.”

Merkel said she will “reach out” to the opposition on how to promote growth in Europe after a European Union summit set for May 23.

Even so, while she acknowledged that the election result was a “bitter, painful defeat” for her party, the chancellor said the Social Democratic victory was down to Hannelore Kraft, the state prime minister. And there’s a “large discrepancy” between the SPD’s performance in the state and nationally, she said.

‘Clear Distinctions’

“I think people make clear distinctions about what they’re voting on,” Merkel said. “That means that ultimately people did realize that this is a state election, and that I wasn’t on the ballot.”

Merkel can rely on “three pillars of strength,” including her personal popularity and a divided opposition, said Jan Techau, director of the European Center of the Carnegie Endowment for International Peace in Brussels.

Her party’s “weakness at the state level isn’t translating into any rise in SPD popularity on a national basis,” Techau said by telephone. What’s more, Kraft’s “strong showing might also lead to new turmoil in the SPD,” with the question of who faces Merkel in 2013 set to “get even more complicated.”

Merkel, asked about the next federal election, said that she is “relaxed” about her party’s prospects.

Electoral Test

North Rhine-Westphalia, with almost a quarter of Germany’s 82 million people and an economy bigger than Switzerland’s, was Merkel’s biggest electoral test before the national vote. It was also the first state her CDU lost in 2010 as the debt crisis erupted and voters rebelled against bailing out Greece.

The chancellor began her campaign in April by attacking the state government based in the capital Dusseldorf for running up debt, contrasting that with her push to curb deficits in Germany and across Europe. Yet she resisted turning the vote into a referendum on her austerity drive, which polls indicate a majority of Germans support.

During the campaign, the CDU’s candidate Norbert Roettgen, the federal environment minister mentioned in German media as a possible successor to Merkel, declined to say whether he would serve as opposition leader in the state if he lost. Polls of voter intention showed that cost him support and Bild, Germany’s most-read daily newspaper, blamed Roettgen for the defeat.

Parlaying Victory

It’s too early to say whether the Social Democrats and Greens can parlay yesterday’s triumph into victory in next year’s federal election, the FG Wahlen polling group said in a poll that found 67 percent of respondents saying the result isn’t a bellwether for national voting. The Mannheim, Germany- based group polled 1,507 people in the state before the poll and 20,363 who voted yesterday. No margin of error was given.

Merkel’s Christian Democrats are the most popular party nationally in all six regular opinion polls, with a lead over the SPD of 6-10 percentage points.

The defeat in North Rhine-Westphalia “is a massive loss in local prestige for the party,” Gerd Langguth, a Merkel biographer and professor of politics at the University of Bonn, said by phone. Even so, Merkel “will do her best to ignore the result. As long as her party is ahead in federal voting patterns she can feel insulated from regional elections.”

To contact the reporters on this story: Tony Czuczka at aczuczka@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net

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

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