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Election Upset in Germany Could Hurt Any Euro Rescue Follow-up

Just as incumbent candidates in the U.S. Senate primaries are being thrown out by citizens unhappy with their recent records, a state election in Germany over the weekend threatens the hold of Chancellor Angela Merkel's Christian Democratic Union (CDU) party. Because Germany is the biggest and most solvent economy in the European Union, and has been leading the efforts to hold the Eurozone together, a setback here could be crucial to confidence in the euro, and in turn the European and world economic recovery. (This post is a bit off my usual track -- what do I know about German state elections? -- but I haven't seen much effort on the issue from the U.S. press, so maybe we can all learn something here.)

Der Speigel tells us:

Angela Merkel's Christian Democrats and their coalition partner the Free Democrats have been voted out of power in Sunday's election in the state of North Rhine-Westphalia.
...[She] had refrained from taking any potentially unpopular decisions in the run-up to Sunday's state election in North Rhine-Westphalia in the hope of securing victory for her center-right Christian Democrats (CDU) and their coalition partner of choice, the business-friendly Free Democratic Party (FDP), which also form Germany's coalition government in Berlin.
But her laid-back strategy backfired, costing her party about 10 per cent of the votes it took in elections five years ago, which means the loss of a coalition government in the state it managed with the smallish FDP party.

From what I can glean, North Rhine-Westaphalia is the largest state in Germany, with a population of about 18 million (about the same number as Florida or New York, and half that of California). Who will govern it is not clear, as the number two SPD party also garnered just 35 percent of the vote; its partner the Greens made a big gain two 12 percent, but not enough to cement a coalition either.

More from Der Speigel:

The defeat will make it harder for Merkel to govern. The CDU and FDP have now lost their majority in the Bundesrat, Germany's upper legislative chamber, and will now only have 31 votes out of a total of 69, instead of the previous 37. That will mean Merkel's government will need opposition approval for any major policies.
Politicians from her own party have been critical, and the opposition have called for her resignation.

So what does this mean for the economic big picture?

German voters seem to be dissatisfied with the bold actions the government has taken, although the turnout for the election was small, perhaps indicating they are crisis-weary. But it's easy to imagine that the hard-working Germans, with the strongest economy in the Eurozone, and a savings rate of something like 11%, will not take kindly to having to bail out Greece, not to mention the Portugal, Spain and Ireland, and whoever else stands in that line.

Here's a comment from a Der Speigel reader:

Dither & Delay & Prevaricate Is Not A Strategy

It can be, but in this case it was very plainly motivated by fear of the quite proper response of the German people to being robbed by their own politicians. It was plain that Merkel wanted to bailout Greece but wanted to do it AFTER the election in NRW. It is about time that politicians learned they cannot get away with this nonsense, and I had thought Ms Merkel was smarter than that. I am glad the voters have shown her the error of her ways in this respect.

Ironically, if she had stood fast and said that she refused to mortgage the incomes of the children of German voters in order to pay for the vote-buying bribes of Greek politicians, then her party would likely have gained rather than lost votes in NRW.

But we see that politicians often have more in common with each other, and more sympathy for each other, than they do with or for their own people.

I expect that leaders in other parties and countries will take this as a warning against making the tough decision, and stand back at a time when grand and decisive action is necessary.