Social Democrats Ousted in State Election

The expected, but no less bitter, defeat in the North Rhine-Westphalia state election has deposed German Chancellor Gerhard Schröder's Social Democrats (SDP) from their power base after 39 years, exit polls showed on Sunday evening.

The loss of Germany's most populous state is a major blow for the SDP with national elections planned for September 2006. Television polls showed the extent of the defeat, showing the conservative Christian Democratic Union (CDU) in front with 45.0 percent, ahead of the SPD's 37.5 percent, and enough to win control of a region Schröder's party has ruled since 1966.

The SDP's Peer Steinbrück will make way as state premier for the Conservative candidate Jürgen Rüttgers once the result has been confirmed.

The shockwaves will be felt from the western state all the way to the capital and will surely reverberate through the coming 12 months, shaking Schröder's already faltering leadership ahead of the general election. The loss of North Rhine-Westphalia (NRW) is an indication that Schröder's hoped for a third term is looking increasingly less likely.

In contrast, the result is likely to boost the chances that CDU leader Angela Merkel will run against Schröder in 2006, raising the prospect of Germany's first woman chancellor.

A desperate shift to the left on the cards?

The likely policy change as a result of the defeat could see the SDP move further over to the left in a bid to win back traditional voters that abandoned them in NRW. The left-wing of the party, which opposed the chancellor's welfare reforms, has been clamoring for a return to more traditional worker-friendly policies and may get that swing on the back of the result on Sunday.

But the defeat may have more far-reaching consequences. A cabinet reshuffle is a possibility with left-wing targets Economy Minister Wolfgang Clement and Finance Minister Hans Eichel in precarious positions. German media reports have said outgoing NRW premier Peer Steinbrück could replace Eichel.

Reforms may face the axe

The loss of NRW could also force Schröder to abandon plans to cut the basic corporate tax rate to 19 percent from 25 percent, a move designed to boost growth but strongly opposed by the left. An extension of the minimum wage to all sectors of the economy and tighter controls on hedge funds are other likely outcomes.

SPD party leader Franz Müntefering has been telegraphing the possible return to the left for weeks, launching a scathing attack on "pure capitalism" and likening some financial investors to "locusts". But the leftist rhetoric has come to late to save the state for the SPD.

The state had long been an SPD stronghold dominated by the coal and steel industry but NRW has fallen on hard times. Unemployment in NRW, a state in which one in five Germans live, surpassed the one million mark to a post-war high this year. The cause of this, disgruntled residents say, is down to Schröder's controversial labor market reforms, which include jobless benefit cuts.

Red-Green coalition on severely shaky ground

The SPD's junior coalition party in the Federal Government was shown in the exit polls to have won 6.0 percent, the same amount as the CDU's likely coalition partners, the liberal Free Democrats (FDP). That puts the combined CDU-FDP at 51.0 percent, above the 43.5 percent of the SPD and Greens.

The election result has ominous implications for the future of SPD and Greens cooperation as well as the future of the government. NRW was the last German state ruled by the Red-Green coalition and the result leaves the increasingly tense federal partnership in Berlin as the final alliance between the two parties.