Berlin hit by a political 'earthquake' after Bavarian election shakes major parties

Key Points
  • Angela Merkel's coalition government in Berlin looks more fragile than ever after voters in the state of Bavaria roundly rejected the chancellor's allied parties at a regional election this weekend.
  • Merkel's coalition partners - her Bavarian sister party, the CSU, and the SPD, fared badly.  
  • The result was likened to a "political earthquake" and "landslide" by experts.
Supporters of the Christian Social Union (CSU) political party react to initial election results after the Bavarian state elections on October 14, 2018 in Munich, Germany. 
Alexander Hassenstein | Getty Images News | Getty Images

Angela Merkel's coalition government in Berlin looks more fragile than ever after voters in the state of Bavaria roundly rejected the chancellor's allied parties at a regional election this weekend. The result was likened to a "political earthquake" and "landslide" by experts.

The Christian Social Union (CSU), Merkel's Bavarian sister party, saw its worst election result since 1950 on Sunday and lost its long-held majority, while the Green party and far-right Alternative for Germany (AfD) party saw their vote share increase.

'Local earthquake'

Political analysts and economists say the result will have big ramifications on the fractious coalition government in Berlin, made up of Merkel's Christian Democratic Union (CDU), the CSU and the Social Democratic Party (SPD) – that has continued to see its popularity slide, in Bavaria and beyond.

"The major takeaway is that the two traditional people's parties – the CSU and the SPD – saw combined losses of 21 percentage points of the vote compared to the last election so that is a clear signal back to the grand coalition that the center is moving out to the fringes both left and right," Andrew Bosomworth, head of German Portfolio Management at PIMCO, told CNBC on Monday.

This is a "local political earthquake," Bosomworth added, speaking to CNBC's Annette Weisbach in Munich, saying there could be "reverberations that will filter through to Berlin."

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The CSU won 36.8 percent of the vote, losing its absolute majority (and falling from a 46.5 percent share in the last election in 2013), preliminary results published by the Bavarian state early Monday morning showed. The Greens won 17.5 percent of the vote, putting them the second place. A collective of independent candidates, the Free Voters, came third with 11.9 percent of the vote.

The AfD won 10.3 percent of the vote putting it in fourth place but marking a stark rise for the anti-immigration, euroskeptic party that didn't even participate in the last Bavarian state election.

What's worse for the 'grand coalition' in Berlin, the SPD – its coalition partner and one that already joined the CDU-CSU alliance reluctantly after being trounced in last October's national election – fared worse than the upstart AfD, with only 10.1 percent of the vote. From the last state vote in 2013, the SPD saw its share of the vote fall by almost 10 percentage points.

Political 'landslide'

One economist said the results had created a "landslide" in German politics amid already tense relations and policy disagreements between the parties within the 'grand coalition' – not least of all between Merkel and Horst Seehofer, the head of the CSU.

"Sunday's elections in Bavaria will have created a landslide. Not only for Bavaria but probably also for German national politics," Carsten Brzeski, chief economist at ING, said in a note Sunday. "Given that the CSU had reached an absolute majority in twelve out of the last thirteen elections, this result marks a political landslide."

Relations between Merkel and the CSU leader Seehofer have been strained in recent months despite the CDU and CSU being long-standing political allies. Seehofer has been openly critical of Merkel's more permissive stance on refugees and migration policy. ING's Brzeski remarked that this strategy had backfired on the CSU with it hemorrhaging voters to both the left and right.

"The party's strategy to criticize Chancellor Angela Merkel's stance on refugees and migration did not work out well. Instead, the party left the political center vacant, leading to the increase of the Greens as a kind of liberal alternative for the CSU. The Greens won many votes in Bavarian cities. At the same time, the CSU's strategy strengthened rather than prevented the AfD," he said.

Still, the CSU gained the highest share of the vote in Bavaria and analysts believe it could see a coalition with the Free Voters. "Currently, a coalition of CSU and Free Voters seems like the most probable outcome, which could keep the damage for the CSU limited, even though the party is shaken to its core and some personnel changes cannot be ruled it," Brzeski noted.

Jumping ship or trapped?

The poor performance of Merkel's coalition partner, the SPD, has also led to questions over whether it will remain in the 'grand coalition' or whether it will see its continuing alliance with the CDU and CSU as politically toxic. How that could affect the coalition as a whole, or what is seen as Merkel's fourth (and predicted to be last) term in government is uncertain.

"The results were a blow to the coalition but it was an expected blow and I guess the good news for Merkel is that the main loser was not the CSU, they will stay in government," Clemens Fuest, president of the Ifo Institute in Germany, told CNBC on Monday.

"The main loser is the SPD, in absolute terms they have lost twice as many voters as the CDU and that's an absolute disaster for the SPD and now they have reasons to leave the coalition. But then, new elections would be another disaster for them so in a way they're trapped in the coalition and that's why I think the coalition will continue."

PIMCO's Andrew Bosomworth said the Bavarian election could have an impact on the make-up of German politics.

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There could be reverberations "on three fronts at least," he said. "On the personalities – the question of whether Seehofer will stay on as head of the CSU and it puts a bit of a question mark on his role in Cabinet. On the composition of policy, immigration in particular, but I think most important for the SPD – does it make sense for them to stay on in the grand coalition when they are moving to unforeseen lows in regional elections and other states in Germany."

"These locals results, and we'll see what happens in Hesse at the end of the month (where another state election will be held), do put a question mark on the SPD's role in the coalition. So at the margin I think we've seen a lowering of the probability that this coalition holds the full term."

He didn't think markets would be sorely impacted by political events in Germany, however, saying that Europe is more concerned with other unfolding events, like controversy over Italy's budget.

"So even if we were to see the federal government in Germany come to an early end I don't think we're going to see a big flight to quality into bunds as a result of that."