AKK's succession in Germany can only be ‘A-OK’ for the EU project

For the first time since 2000, Angela Merkel’s name will no longer appear on the ballot for the German electorate, writes Philip Hartley.

The chancellor has relinquished her 18-year title as the leader of Germany’s most influential party, the Christian Democratic Union (CDU), to Annegret Kramp-Karrenbauer — also known as AKK.

This change in leadership has not commanded the same amount of market focus as many would have expected, nonetheless this leadership election in Germany has the potential to be a pivotal moment, not only for German politics, but for the euro in its entirety.

While the political uncertainty that concerned investors in 2016 may have receded, politics in Europe still faces challenges on a number of fronts.

As tensions in Paris continue to brew, the Italian government challenges the European Commission over its budget, transatlantic ties unravel, and Brexit talks linger, Germany has the opportunity now to embrace the leadership position as a bastion of stability in European politics.

So, who is AKK Annegret Kramp-Karrenbauer (AKK) and what does her accession to the leadership of the CDU mean for the single currency from here?

German Chancellor Angela Merkel makes final speech to her party as its leader after 18 years at the helm. Annegret Kramp-Karrenbauer, a Merkel ally, was elected as the new leader of Merkel's center-right party. https://t.co/u7H8JgEr7E pic.twitter.com/93JnQYDNso

— The Associated Press (@AP) December 7, 2018

AKK was previously the CDU secretary general, a role Ms Merkel herself once held.

Dubbed “mini Merkel” by the German press, she will adopt a continuation of the centrist policies Ms Merkel has blazed over the last 18 years.

AKK’s success in taking the reins from Ms Merkel will likely be embraced among the European liberal establishment as a beacon of certainty through times of unprecedented risks.

Financial markets, too, will see the result as a positive for European markets; AKK’s win means that Ms Merkel will likely remain in her position until 2021 and will come close to overtaking Helmut Kohl as the longest serving German chancellor of all time.

Ms Merkel, who will be thrilled by the victory of her protege, should now be able to tackle the current issues of Brexit, Italy, and strenuous ties across the Atlantic from a position of renewed authority.

Market focus will now turn to the grand coalition (GroKo) of which Merkel and AKK’s party dominate the left-leaning Social Democratic Party, and the risk they may use this change of CDU leadership to force new elections. The chancellor-elect may well prove key here, with her record as a state premier in Saarland, where she led a coalition with the Greens and the Free Democrats, highlighting adept skills in building consensus from disparate views; hence her nickname, mini Merkel.

Meet Annegret Kramp-Karrenbauer, Merkel's successor as CDU chief:

- She wants to give all citizens a sense of being at home in Germany
- She values community and inclusiveness
- 52% of CDU supporters said she'd make a good chancellor https://t.co/yf80JLpjPJ pic.twitter.com/JUXdHN53Xv

— Bloomberg Opinion (@opinion) December 7, 2018

AKK also enjoys mass support among the CDU grassroots, and with support for the SPD continuing to slide, now trailing fourth in some national polls, AKK is well-positioned to negotiate a successful continuation of the grand coalition into 2021.

On the European stage, AKK’s accession has now reinforced a key bulwark of the European political project against the more populist leanings of some member states ahead of key elections in May of next year.

A committed europhile, AKK will continue the steps towards European integration, begun under her predecessor, while her more cautious approach on immigration may offer some respite to the fractious European debate that has proved so divisive at the European level.

The protests in France against the leadership of President Emmanuel Macron, combined with the dismal performance of the CDU in regional elections, have been a blow to the European centre, and the drive towards further European integration.

The accession of AKK to the helm of the CDU will provide a key support to Ms Merkel as she, and Germany, look to once again provide leadership through the multitude of challenges facing the European project in the new year.

This may reinvigorate the single currency appreciation against the dollar.

Philip Hartley is head of foreign exchange and emerging markets at Bank of Ireland Global Markets