New CDU leader faces first stand-off with Angela Merkel

Not even two weeks into his new job, Germany’s new Christian Democratic Union (CDU) leader, Armin Laschet, is facing his first battle of political will with chancellor Angela Merkel.

On the surface the issue – how much debt Germany can afford to take on in its pandemic emergency relief effort – is no different to the question all European governments are asking.

But Germany is facing into a busy year of state elections, crowned with a federal election in September. And debt – traditionally a cultural minefield in Germany – has the potential to stoke up an identity battle raging within a divided CDU.

Merkel’s closest aide triggered the row by suggesting the ongoing pandemic required an extended break from Germany’s so-called debt brake.

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This is an instrument the federal government imposed on itself a decade ago during the euro crisis, imposing clear limits on deficit spending and forcing balanced budgets from 2016 on.

Nearly a decade of fiscal restraint – and borrowing costs at historic, negligible levels – allowed Germany post a series of balanced budgets, even surpluses, until last March. Then Bundestag MPs voted to suspend the debt brake to allow €156 billion in emergency stimulus measures – 10 per cent of Germany’s gross national product – to fight the growing Covid-19 crisis.

Rewriting the rules

Rather than reimpose the brake in 2022 as planned, Merkel’s chief-of-staff, Helge Braun, proposed rewriting the rules to allow a “reliable corridor for new borrowing... and stipulating a clear date for the return to compliance with the debt rules”.

Braun’s idea for greater fiscal wriggle room was a step too far for fans of Germany’s balanced budget fiscal orthodoxy, the so-called black zero policy. Within hours the chancellery kite was shot down with unusual venom – by friendly fire within the CDU.

With some haste, Braun insisted his was a “personal opinion”, but his row-back failed to convince many in Berlin who know the top chancellery official never does anything without the permission of his boss.

Leading the attack, and defending the debt brake in its current form, was Laschet. The new CDU leader told a closed-door meeting of his parliamentary party that the debt brake was “here to stay”.

“If members of the government see it necessary to change the constitution, they should co-ordinate ahead of time with the party and the parliamentary party,” he told MPs.

Debt corset

Laschet’s enthusiasm for the self-imposed debt corset is driven less by fiscal conviction than realpolitik. Earlier this month, some 47 per cent of CDU delegates, mostly the party’s influential business and conservative wings, refused to back as leader a man they view as a Merkel continuity candidate.

Merkel’s push to modernise the party – moving it to the political centre – secured the CDU four terms in office since 2005.

For the right wing of the CDU, her 18-year era as party leader until 2018 was an extended period of estrangement. On her watch, the party abandoned policy touchstones such as military service and nuclear power. Signing Berlin up to an EU emergency fund last year, allowing the European Commission to issue debt for the first time, pushed CDU conservatives to the brink.

With Merkel’s departure looming after September’s election, a chancellery push to soften the debt rulebook proved the final straw for CDU conservatives.

Laschet won this round on a debt brake holiday, knowing his credibility is on the line with sceptical CDU conservatives, many based in the powerful southwest state of Baden-Württemberg.

The poll to elect a new state government on March 16th is, for Laschet, a first test of his ability to unite his party – and run as chancellor hopeful in September.