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Merkel coalition ally veers left in move that could break fiscal discipline


Dec. 02, 2019

Social Democrats veer left
The SPD -- Germany junior coalition party -- made a surprising swing to the left in a weekend leadership convention.
German vice chancellor and favored leader Olaf Scholz was defeated by Norbert Walter-Borjans and Saskia Esken, who ran as co-leaders. The vote was 53%-45%.
The move could destabilize Merkel's grand coalition but that also might be a good thing. The new leaders could demand Germany abandon its pledge on zero deficits. Christine Lagarde and others have been urging Germany to stimulate demand, especially in light of sub-zero borrowing rates. A minimum wage hike could also boost inflation expectations.
However at worst, the coalition could fall apart and German politics could turn towards a period of political paralysis as Merkel bows out.
Signals about what's coming next could sway the euro in the days ahead.
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