BERLIN (Reuters) - After a brief ceasefire, Angela Merkel’s Christian Democrats are fighting among themselves again over the future shape and leadership of their party as the chancellor stage-manages her exit as German leader.

FILE PHOTO: German Chancellor Angela Merkel talks to Peter Altmaier during a Christian Democratic Union (CDU) party congress in Berlin, Germany, February 26, 2018. REUTERS/Fabrizio Bensch -/File Photo

The battle, ostensibly over a new industrial strategy led by Economy Minister Peter Altmaier, is symptomatic of a deeper struggle in the party over its future and has broken a truce agreed in December after a divisive leadership contest.

At stake are both the direction the Christian Democratic Union (CDU) takes as it starts to chart a course for the post-Merkel era, and the prospects of Annegret Kramp-Karrenbauer - the new party leader and Merkel’s protege.

The debate pits supporters of a more interventionist industrial policy like Altmaier against CDU traditionalists who seek to limit the state’s role to creating the right legal framework for competition to flourish. They see this approach, known as “ordo-liberalism”, as key to Germany’s postwar economic revival.

Altmaier was forced on Friday to dismiss reports his job was under threat from Friedrich Merz, who narrowly lost out to Kramp-Karrenbauer in December’s run-off vote to decide the CDU leadership.

“This standoff is clearly about the future of the CDU,” said Carsten Nickel at Teneo Intelligence, a consultancy.

“Under Merkel, the party has focused on the new urban middle classes. The looming end of that era seems to be reinvigorating the more traditional parts of the CDU’s base such as small business owners,” added Nickel. “Merz is their hero.”

Altmaier, a close Merkel ally and formerly her chief of staff, annoyed the CDU’s free-market-loving base in February with plans for a more defensive industrial strategy that could see Berlin buy stakes in companies to prevent foreign takeovers.

His policy pivot was driven by concerns about Chinese firms acquiring German know-how, but by riling CDU traditionalists it has challenged Kramp-Karrenbauer to define her economic stance.

A social conservative, Kramp-Karrenbauer is pragmatic and more centrist on economic policy, like Merkel, whom she is in pole position to succeed after winning the CDU leadership that the chancellor decided last year not to seek again.

But her narrow margin of victory over Merz - 517 votes to 482 in a run-off - means she is taking care to appeal to the CDU’s conservative business base, which he represents.

To that end, Kramp-Karrenbauer appeared with Merz at a CDU campaign rally on Friday ahead of European elections in May.

CDU conservatives, led by former finance minister Wolfgang Schaeuble, warm to Merz, a businessman, who would have a platform for a potential run for chancellor if he were to take over as economy minister.

BALANCING ACT

A CDU source dismissed as “nonsense” the idea that Merz could replace Altmaier. Asked whether Merz was after his job, Altmaier told Deutschlandfunk radio on Friday: “I do not have the impression that a plot is being hatched in the party.”

But one senior German official said Altmaier was isolated in his own ministry over his industrial policy plan: “The minister is very committed to this. But if you talk to the ministry officials, it is very different.”

Carsten Linnemann, head of the MIT group that represents small and mid-sized businesses in Merkel’s conservative bloc, called for “corrections” to Altmaier’s industry plans.

“But it is unfair to make Mr Altmaier the economic lobby’s scapegoat for its discontent with the grand coalition,” he said.

Altmaier remains a close Merkel ally and his position is not in jeopardy, government sources say.

“Altmaier is not up for discussion,” said one. “Of course there are differences, like over the industry policy proposals. The chancellor has said these can be discussed in detail. But it was her express wish that Altmaier kick off a debate.”

He may nonetheless be forced out in the longer term, especially if Kramp-Karrenbauer keeps close to Merz.

Like Kramp-Karrenbauer, known as ‘AKK’ after her initials, Altmaier is from the tiny western state of Saarland. Should she become chancellor, two CDU Saarlanders in the cabinet may be one too many for other party members from bigger states.

Kramp-Karrenbauer has been working hard to unite the CDU and improve ties with its Bavarian sister party, the Christian Social Union, which last year clashed with their Social Democrat (SPD) allies and pushed the ruling coalition close to collapse.

However, a series of gaffes this year - most recently poking fun at trans-gender people - have raised questions about her suitability for the highest office. She needs to be careful with her policy positions as well as watching her style.

If Kramp-Karrenbauer moves too far right and the left-leaning SPD performs poorly in European elections, a state vote in Bremen - also in May - or regional polls in eastern Germany in the autumn, the party could decide to rebuild in opposition.

The SPD only joined the coalition after a bitter internal debate last year.

“AKK is catering heavily to the traditionalist right now,” said Nickel. “But the risk for the coalition is that this rightist turn will provoke a nervous SPD to pull the plug later this year.”