Angela Merkel’s hold on Germany tightens following key state victory

Key Points
  • Angela Merkel's CDU unseats Martin Schulz' SPD in North Rhine-Westphalia.
  • Regional election seen as a litmus test for September federal election.
  • Homeland security pledge amasses new gains for the conservatives.
Merkel's CDU defeats rival SPD in key state election

Angela Merkel is widely tipped to secure a fourth term as German Chancellor after her Christian Democratic Union (CDU) defeated the Social Democrats (SPD) in a key state election on Sunday.

Preliminary results for the regional run-off in North Rhine-Westphalia, Germany's most populous state, indicate that the CDU secured 33 percent of votes to the SPD's 31.2 percent in a vote which is largely seen as a bellwether for the country's upcoming federal election on September 24.

The SPD's vote is thought to be down by 8.6 percent since the last election in 2012, while the CDU is up by almost the same amount.

The CDU's victory serves a bitter blow to Merkel's chief opponent Martin Schulz, leader of the SPD, who had hoped a win in his hometown would boost his chances of unseating the German premier who has held a 12-year stronghold over the EU's largest economy.

Schulz had enjoyed a rapid rise in popularity this year and was once considered a strong contender to Merkel's continued dominance. However, Sunday's loss points to the waning support for the opposition party.

North-Rhine Westphalia, home to 13 million people or one-fifth of Germany's voting population has been governed by a coalition of the SPD and Green party since 2010.

CDU Deputy Chair: Merkel’s campaigning is very helpful for us

Schulz dubbed the result "a hard day for social democracy" shortly after conceding defeat.

This is the second time in a week that that Merkel's conservative party has usurped the SPD. In a similar region election in Schleswig-Holstein on May 7, the CDU emerged with 33 percent of votes to the SPD's 26.2.

The SPD have now lost three regional elections to the CDU.

The state leader of the SDP in North Rhine-Westphalia, Hannelore Kraft, resigned immediately in a bid to deflect the loss away from Schulz. However, analysts anticipate that it will be an uphill battle for Schulz – or indeed any other opposition candidate – to unseat Merkel in Berlin.

"This is a veritable disaster for the party that has controlled the country's industrial heartland for almost half a century," Carsten Nickel, deputy director of research at Teneo Intelligence said in a research note.

"This marks the end of the so-called Schulz effect, the euphoria that surrounded Merkel's popular challenger ever since his surprise nomination earlier this year.

"His immediate task now will be to relaunch the so-far exclusively personality-driven SPD campaign for the Bundestag elections; the party immediately needs to start focusing on policies to widen the SPD's appeal beyond its core electorate."

However, Merkel's victory indicates that her charm offensive to win over new supported in the regions ahead of September's Bundestag election has already gained traction. She visited North Rhine-Westphalia eight times prior to the vote and has put homeland security at the centre of campaign in a bid to attract public backing as the country faces continued security threats.

"We have spoken a lot about security on the streets," Armin Laschet, CDU leader to North Rhine –Westphalia told CNBC Monday, remarking on his party's new success.

"We need more police to secure the security of the people but we want as well to lead a country of integration."

Merkel's party was thought to have been losing relevance in recent years after suffering defeat in several state elections, prompting commentators to anticipate a shift towards non-traditional parties, as seen with the rise in populism in 2016.

However, with a win for mainstream candidate Mark Rutte in Holland's election earlier this year, and the victory of Emmanuel Macron over Marine Le Pen in France last week, Germany's incumbent could be well positioned for a ride through to her fourth term.

"(Germans) are going back to what they know best and against populism … This is the story of 2017 - the fight back against populism," posited Timothy Ash, economist at BlueBay Asset Management.

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