Political Paralysis Hits Germany as Collapse of Talks Tests Merkel -- Update

By Andrea Thomas Features Dow Jones Newswires

German Chancellor Angela Merkel was weighing next moves on Monday after the collapse of talks to form a new government posed a threat to her leadership and raised doubts about the political stability of the European Union's most powerful country.

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The lack of progress in Berlin means Germany could stay politically rudderless for weeks to come, putting plans by French President Emmanuel Macron to reform the eurozone back on hold.

Analysts said the collapse of coalition talks might have dented Ms. Merkel's authority after 12 years as chancellor but noted that she remained her Christian Democratic Union's sole credible leader. Speaking in Berlin on Monday, a defiant Ms. Merkel dismissed suggestions she might step down.

The chancellor said she would keep working toward building a stable government and was ready to lead her party's ticket in the event of fresh elections.

"If it comes to a new election, that's something you have to accept," she told the ZDF public-sector broadcaster. "I'm not afraid of it."

A flash Forsa poll of 1,789 respondents conducted on Monday showed 85% of CDU voters thought Ms. Merkel should lead her party into fresh elections, suggesting the collapse of the coalition talks hadn't inflicted irreparable damage on her political support.

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But constitutional hurdles mean it could take weeks, even months, before Germans go to the polls again. And Monday's Forsa polls, like others in recent weeks, suggested a new ballot would yield roughly the same result as the September vote -- a fractured parliament without a clear majority -- likely leaving the country in political gridlock.

Ms. Merkel's conservative alliance had been negotiating for weeks with ideologically divergent parties after its failure to secure a decisive victory in September's election left it needing to form a coalition to govern. In the early hours of Monday, the small pro-business Free Democratic Party broke off talks with her conservative camp and the center-left Greens, saying the negotiations had failed to bring the parties together.

Investors initially sold the euro and German stocks on the news, although markets later recovered and German stocks ended the day with gains.

Ms. Merkel and her party have signaled strong reservations about Mr. Macron's plans to revamp the eurozone -- which include a call for a common budget for countries that use the euro -- but the chancellor has avoided rebuffing the French leader.

Ms. Merkel met Monday with President Frank-Walter Steinmeier -- the only official under German law with the authority to dissolve parliament and call early elections -- to chart out her next steps.

Mr. Steinmeier said he would consult with the main parties in parliament to explore alternative coalitions before paving the way for a new ballot.

"The parties have campaigned for responsibility in the Sept. 24 elections, a responsibility Germany's constitution says can't simply be handed back to voters," Mr. Steinmeier said.

The Social Democrats, the previous coalition partner of Ms. Merkel's CDU, ruled out a repeat of that so-called grand coalition after the election, a position it reiterated on Monday.

But Andrea Nahles, the party's recently appointed parliamentary leader, said the Social Democrats would make themselves available for talks now, hinting that the party might consider alternative coalitions involving Ms. Merkel's CDU.

Some in Ms. Merkel's camp have floated the idea of Ms. Merkel stepping down as party chairman and chancellor in order to facilitate a rapprochement with the Social Democrats, one person familiar with the plan said on Monday.

But Ms. Merkel dismissed the suggestion in a TV interview on Monday as "extortion," saying "nothing good can come out of this."

She said she was also skeptical about another scenario that would see her lead a minority government over a transition period. This, she said, wouldn't give the country the stability voters were yearning for.

Over the past four weeks, Ms. Merkel tried to bridge longstanding divisions among the conservatives, the Greens and the Free Democrats on issues such as migration, climate and the environment. One of the key conflicts was between the Greens' push to let family members from war-torn countries join those given shelter in Germany and the insistence of Ms. Merkel's conservative sister party in Bavaria, the Christian Social Union, on capping the influx.

The parties also struggled to agree on greenhouse-gas emission targets ambitious enough to meet the goals set by the Paris accords on fighting climate change without burdening Germany's industry.

The Free Democrats, meanwhile, insisted on abolishing over the next four years the "solidarity tax" levied since 1991 to help fund development in the former East Germany.

Some analysts say election could benefit the anti-immigration Alternative for Germany, which won its first seats in national parliament in September. The party's leader called for Ms. Merkel to step down.

"Ms. Merkel has failed and it's time for her to go as chancellor," said Alexander Gauland, the co-leader of the party's parliamentary group. "We believe there is a conservative majority [in the lower house of parliament], but for this the Christian Democrats would have to change very much. We hope that Ms. Merkel's failure will prompt the Christian Democrats to rethink."

The Christian Social Union has pushed for a move rightward, suggesting that her move to the center had left an opening for the anti-immigrant party among conservative voters.

--Christian Grimme contributed to this article.

Write to Andrea Thomas at andrea.thomas@wsj.com

(END) Dow Jones Newswires

November 20, 2017 14:23 ET (19:23 GMT)