Germany's Steinmeier to Challenge Merkel, Threatening Impasse

By Brian Parkin

Sept. 8 (Bloomberg) -- German Foreign Minister Frank-Walter Steinmeier's campaign against Chancellor Angela Merkel next year will pit the coalition government's top two officials against each other.

A Social Democratic Party shake-up yesterday that left Steinmeier, former Chancellor Gerhard Schroeder's chief of staff, as its candidate threatens political impasse just as the economy stumbles. The Social Democrats and Merkel's Christian Democrats formed a coalition in November 2005 after elections left them unable to form a government on their own.

``The coalition, already under strain, will become dysfunctional,'' Hans-Juergen Hoffmann, managing director of polling company Psephos, said in an interview. ``The coalition parties will be preoccupied with defining, honing their differences, rather than working on a common policy as the economy cools. The election has clearly begun.''

Steinmeier, who has never held an elected position, was picked by party leaders, who also replaced Kurt Beck as party chairman with Franz Muentefering, 68, at a meeting yesterday near Potsdam. Beck's popularity plunged to record lows during his 2 1/2-year tenure, as the anti-capitalist Left party made gains among the SPD's traditional supporters.

Steinmeier, 52, told reporters that he and Beck ``agreed that the party must make a new start'' to be ``strong at the center and end factional fighting.'' He added that it was ``a hard day'' for the party.

`Dysfunctional'

The foreign minister, who also holds the post of vice- chancellor, represents the SPD's best chance of closing a poll lead of as many as 16 percentage points enjoyed by the Christian Democrats, according to Paul Nolte, politics professor at Berlin's Free University.

In foreign policy, Steinmeier has sought to avoid isolating Russia after its war with Georgia and opposed Merkel's decision in 2007 to meet the Dalai Lama, concerned it would strain ties with China. Merkel wants to drop plans to scrap nuclear energy and opposes Socialist hopes of introducing a minimum wage.

With Steinmeier representing ``middle-ground politics'' and Muentefering as a bridge to the SPD's more traditional supporters, ``the party can rely on a tandem at the top to win votes,'' Nolte said in an interview. ``The party now has a chance to put up a fight against Merkel.''

The son of a carpenter, Steinmeier began his career as a legal researcher at Giessen University before entering politics in Lower Saxony. Schroeder, who was then the state's prime minister, made Steinmeier his chancellery chief, a role he went on to fulfill at national level in 1999 a year after Schroeder became German leader.

`Grand Coalition'

Appointed foreign minister in Merkel's ``Grand Coalition,'' Steinmeier has at times overtaken Merkel in polls to become Germany's most popular politician.

Muentefering, a party veteran of four decades, resigned as vice-chancellor and labor minister in November last year to tend to his wife, Ankepetra. The move deprived the leadership of a mediator between factions that have been at loggerheads since Schroeder's Agenda 2010 program that slashed welfare and unemployment benefits, triggering nationwide street protests in 2003.

Muentefering, who once decried private investors as ``locusts'' devouring German jobs, unsuccessfully fought moves by Beck to reconsider elements of the Agenda 2010 package. An SPD party convention agreed to Beck's proposals in October.

`Worked Well'

Muentefering's wife died of cancer on Aug. 1. Merkel welcomed Muentefering's subsequent decision to return to Berlin as a lawmaker. ``We worked well together,'' Merkel said.

``Steinmeier and Muentefering are both supporters of Agenda 2010 and they have to sell this to the left wing of their party,'' Wolfgang Bosbach, deputy chairman of Merkel's party in parliament, said on N-TV. ``I'm very keen to see how they fare.''

Steinmeier rejects potential alliances between the SPD and the opposition Left Party, formed in 2007 in part to force the government to reverse the welfare cuts. The Left advocates the withdrawal of German troops from Afghanistan, a stance also opposed by Steinmeier.

Steinmeier and Muentefering, ``must clearly distance the SPD from the Left Party or risk bleeding more votes to the opposition,'' Nolte said. Beck, by contrast, ``had to go -- he represented a party resigned to defeat.''

Beck, 59, said in his statement that the German media had influenced his decision to quit by spreading ``false information'' that gave him ``no room to maneuver and to make decisions.'' Beck said he assumed the office of chairman to help his party. ``As that doesn't seem to be possible any more, I've drawn the consequences.''

Beck's Plunge

Beck's popularity was on a par with Merkel's when he took over the chairmanship of the SPD in April 2006. His standing plummeted in January after he sanctioned cooperation with the Left Party in the state of Hesse. The Left, which comprises former East German communists and disaffected ex-SPD members, is shunned by all parties at a national level yet has eaten away at the Social Democrats' traditional support base.

Left Party Chairman Oskar Lafontaine, a former SPD leader and one-time finance minister in Schroeder's government, said it was ``a bad day'' for workers and pensioners.

``With this decision, the SPD is continuing the anti-social course that has led to electoral defeat and a vanishing membership,'' he said in a statement.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net