Economics
How does Ron DeSantis dropping out change the Republican primary?
Editor’s note (January 21st 2024): This story was updated after Ron DeSantis said he was suspending his campaign for the Republican nomination.
RON DESANTIS’S campaign ended, as it began, on X. His live launch event was meant to show how au fait with the future the Florida governor was. Instead the glitchy launch turned into the equivalent of dad dancing. Mr DeSantis took no such chances with his withdrawal from the Republican primary, which he announced in a video posted on the same platform. As a final act of self-degradation he endorsed Donald Trump, who has been bullying him for months about his height and his table manners.
That leaves just two candidates standing: Mr Trump and Nikki Haley. Ms Haley’s hopes hinge on the tiny state of New Hampshire, which votes on January 23rd. Though only three of the past eight winners of a competitive Republican Iowa caucus have gone on to win their party’s nomination, New Hampshire has voted for six eventual nominees. Ms Haley hopes to become the seventh. Mr DeSantis’s departure is unlikely to make a hard task any easier.
Her campaign is right to bet on New Hampshire. Ms Haley’s base—independent, moderate and college-educated voters—makes up an unusually large share of the state’s primary electorate. But the promise New Hampshire offers is also why Ms Haley finds herself in a bind. Although a triumph in the Granite State could give her a lift, the electorate across the remaining key states in the Republican primary is more religious, less educated and as a result far Trumpier. The coalition she has crafted to be competitive in New Hampshire will be hard, perhaps impossible, to recreate elsewhere.
A Republican non-incumbent candidate has never won both Iowa and New Hampshire in the party’s primary. But judging by the latest polling Donald Trump, ever the disruptor, looks set to make history. He leads Ms Haley in the state by 15 points; Mr DeSantis had sunk to single figures (see chart 1). In a Republican primary marked by candidates fighting for second place (the former president leads nationally by 55 points), the Haley campaign reckons her smaller deficit in New Hampshire is surmountable. A month before the Iowa caucuses Mr Trump’s lead in the state was nearly double what it is today. Her campaign and allied super PACs have bombarded New Hampshire’s airwaves with ads, spending twice as much as Mr Trump and a bit more than three and a half times as much as Mr DeSantis, who finished just above Ms Haley in Iowa on January 15th (chart 2).
Now he is no longer in the race, where will his voters go? The Economist’s YouGov poll, taken earlier in January, asked Republican primary voters about their second preferences. The race may have moved since, and the poll was taken before Vivek Ramaswamy dropped out, but the numbers are still instructive. Among first choice DeSantis voters in that survey, 44% said Mr Trump would be their second choice. Only 24% said they would vote for Ms Haley. The sample is small, so aim off for that. But the reason the sample is small is that there are so few DeSantis voters in the poll.
If Ms Haley wins in New Hampshire it will be in no small part thanks to the state’s open primary rules and, to a lesser extent, a kink in the Democratic primary. Unaffiliated voters, not just Democrats and Republicans, can take part in one of New Hampshire’s primaries. This year some independents will have little choice but to vote in the Republican one because New Hampshire (living up to its state motto “live free or die”) has rendered the Democratic Party’s primary obsolete. In an effort to make the set of states that vote earlier in the primary process more reflective of the Democratic Party’s voters, the Democratic National Committee (DNC) moved the state’s primary to follow or coincide with those of South Carolina and Nevada, which have more non-white voters. But New Hampshire state law requires its primaries to be the first in the country. As a result, the contest on Tuesday is not formally recognised by the DNC, and Joe Biden is not on the ballot.
This is fortunate for Ms Haley. Independents in New Hampshire back her by a 15-point margin. According to poll estimates, they are expected to account for nearly half the state’s primary electorate, compared with 30% in 2016. However, other states with open Republican primaries will have a corresponding Democratic primary to siphon off independents. Such is the case in South Carolina, Ms Haley’s home state. According to a poll taken in early January, although independents there support her by a four-point margin, they make up only an estimated one-quarter of the state’s Republican-primary electorate. And because Mr Trump’s grip on the remaining three-quarters of South Carolina’s electorate is so strong (they back him by three to one), the overall gap between Ms Haley and the former president was a canyonesque 29 points before Mr DeSantis dropped out. For her four-point advantage among independents to outweigh her 41-point deficit among Republicans, independents would need to make up 91% of the South Carolina electorate. They do not.
Just possibly she could win New Hampshire’s Republican primary on the backs of independents, but she cannot win the nomination with this formula. So winning alone is not enough; rather, Ms Haley needs to show marked improvement among the party faithful if her candidacy is to remain viable. She failed to surge among Republicans in Iowa and polling suggests it will be a tall order in New Hampshire, too. According to a Suffolk University poll, nearly half of Ms Haley’s would-be voters there say they are casting their ballot against Donald Trump, rather than in support of her. In contrast, 93% of Mr Trump’s supporters say they are voting for him, not against Ms Haley. MAGA voters’ support seems to be set in granite.■
Production at the VW plant in Emden.
Sina Schuldt | Picture Alliance | Getty Images
The struggling German economy has been a major talking point among critics of Chancellor Olaf Scholz’ government during the latest election campaign — but analysts warn a new leadership might not turn these tides.
As voters prepare to head to the polls, it is now all but certain that Germany will soon have a new chancellor. The Christian Democratic Union’s Friedrich Merz is the firm favorite.
Merz has not shied away from blasting Scholz’s economic policies and from linking them to the lackluster state of Europe’s largest economy. He argues that a government under his leadership would give the economy the boost it needs.
Experts speaking to CNBC were less sure.
“There is a high risk that Germany will get a refurbished economic model after the elections, but not a brand new model that makes the competition jealous,” Carsten Brzeski, global head of macro at ING, told CNBC.
The CDU/CSU economic agenda
The CDU, which on a federal level ties up with regional sister party the Christian Social Union, is running on a “typical economic conservative program,” Brzeski said.
It includes income and corporate tax cuts, fewer subsidies and less bureaucracy, changes to social benefits, deregulation, support for innovation, start-ups and artificial intelligence and boosting investment among other policies, according to CDU/CSU campaigners.
“The weak parts of the positions are that the CDU/CSU is not very precise on how it wants to increase investments in infrastructure, digitalization and education. The intention is there, but the details are not,” Brzeski said, noting that the union appears to be aiming to revive Germany’s economic model without fully overhauling it.
“It is still a reform program which pretends that change can happen without pain,” he said.
Geraldine Dany-Knedlik, head of forecasting at research institute DIW Berlin, noted that the CDU is also looking to reach gross domestic product growth of around 2% again through its fiscal and economic program called “Agenda 2030.”
But reaching such levels of economic expansion in Germany “seems unrealistic,” not just temporarily, but also in the long run, she told CNBC.
Germany’s GDP declined in both 2023 and 2024. Recent quarterly growth readings have also been teetering on the verge of a technical recession, which has so far been narrowly avoided. The German economy shrank by 0.2% in the fourth quarter, compared with the previous three-month stretch, according to the latest reading.
Europe’s largest economy faces pressure in key industries like the auto sector, issues with infrastructure like the country’s rail network and a housebuilding crisis.
Dany-Knedlik also flagged the so-called debt brake, a long-standing fiscal rule that is enshrined in Germany’s constitution, which limits the size of the structural budget deficit and how much debt the government can take on.
Whether or not the clause should be overhauled has been a big part of the fiscal debate ahead of the election. While the CDU ideally does not want to change the debt brake, Merz has said that he may be open to some reform.
“To increase growth prospects substantially without increasing debt also seems rather unlikely,” DIW’s Dany-Knedlik said, adding that, if public investments were to rise within the limits of the debt brake, significant tax increases would be unavoidable.
“Taking into account that a 2 Percent growth target is to be reached within a 4 year legislation period, the Agenda 2030 in combination with conservatives attitude towards the debt break to me reads more of a wish list than a straight forward economic growth program,” she said.
Franziska Palmas, senior Europe economist at Capital Economics, sees some benefits to the plans of the CDU-CSU union, saying they would likely “be positive” for the economy, but warning that the resulting boost would be small.
“Tax cuts would support consumer spending and private investment, but weak sentiment means consumers may save a significant share of their additional after-tax income and firms may be reluctant to invest,” she told CNBC.
Palmas nevertheless pointed out that not everyone would come away a winner from the new policies. Income tax cuts would benefit middle- and higher-income households more than those with a lower income, who would also be affected by potential reductions of social benefits.
Coalition talks ahead
Following the Sunday election, the CDU/CSU will almost certainly be left to find a coalition partner to form a majority government, with the Social Democratic Party or the Green party emerging as the likeliest candidates.
The parties will need to broker a coalition agreement outlining their joint goals, including on the economy — which could prove to be a difficult undertaking, Capital Economics’ Palmas said.
“The CDU and the SPD and Greens have significantly different economic policy positions,” she said, pointing to discrepancies over taxes and regulation. While the CDU/CSU want to reduce both items, the SPD and Greens seek to raise taxes and oppose deregulation in at least some areas, Palmas explained.
The group is nevertheless likely to hold the power in any potential negotiations as it will likely have their choice between partnering with the SPD or Greens.
“Accordingly, we suspect that the coalition agreement will include most of the CDU’s main economic proposals,” she said.
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