Annegret Kramp-Karrenbauer, left, is congratulated by Angela Merkel after receiving the most votes to become the next leader of the German Christian Democrats (CDU) at a federal congress of the CDU on December 7, 2018 in Hamburg, Germany. 

Carsten Koall | Getty Images

Annegret Kramp-Karrenbauer, the leader of Germany’s Christian Democratic Union (CDU) and the expected successor of Angela Merkel, will not run for chancellor, according to party sources.

She will also give up the leadership of the CDU in the summer setting in motion a party leadership contest, according to a Reuters source, and Merkel wants Kramp-Karrenbauer —  known colloquially as “AKK” — to remain as defense minister.

The announcement was also reported by other German media outlets including newspapers Der Spiegel, Frankfurter Allgemeine Zeitung, Handeslblatt and Die Welt. A CDU lawmaker confirmed the reports to CNBC but the party has not officially announced the news, although a press conference will take place later on Monday.

The announcement throws the CDU’s political future, and that of Europe’s largest economy, into doubt once Merkel steps down from the chancellorship in 2021.

Kramp-Karrenbauer had taken over the party leadership in December 2018 and was widely seen as a successor to Merkel, who has led Germany since 2005.

The move comes at a difficult time for German politics with the CDU and its Bavarian sister party, the Christian Social Union (CSU), in an awkward and troubled coalition government with the Social Democratic Party (SPD). The CDU has seen its popularity decline in several regional elections in recent months.

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There was uproar last week when the CDU party in the small state of Thuringia joined forces with the far-right, anti-immigration Alternative for Germany (AfD) party to elect a new state premier. The politician was from the Free Democratic Party (FDP) but he has since stepped down from the role following the furor caused by the vote.

However, the move sent shockwaves to Berlin as mainstream parties had vowed not to work with the AfD before now. The decision by the local branch of the CDU to help a candidate into office, alongside the AfD, was seen as a defiant message against the party’s leadership — and a reason for the departure of Kramp-Karrenbauer.

Christian Schulz, director of European economics at Citi, said Monday that Kramp-Karrenbauer announced her intention to step down in a CDU board meeting on Monday “and cited divisions over cooperation with the far-left and far-right parties after the shock event in Thuringia” with Merkel reportedly favoring cooperation with the Left Party in Thuringia, which Kramp-Karrenbauer ruled out.

‘Structurally divided’

Now, analysts are looking at a possible successor to both the CDU and German leadership, with Friedrich Merz, Armin Laschet and Jens Spahn seen as front-runners for the leadership.

The next leader will be closely-watched in Europe too, as Germany has been seen as the region’s growth driver, although its economy almost entered a recession in 2019.

Carsten Nickel, deputy director of research at Teneo Intelligence, told CNBC Monday that the announcement casts further uncertainty over the future direction of the CDU.

“The big underlying question hasn’t been resolved and that is, does the CDU want to look back towards a more traditional right or does it want to stick to that more centrist course that it has been on under Merkel?” he told CNBC’s “Street Signs.”

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He said the structural problem in the CDU between centrists and traditionalists — both within the party and its voters – was the biggest challenge facing the party.

“My concern, looking back, one year ago was that whoever you end up with (leading the CDU) — the more traditionalist leader or, on paper, the more liberal leader like her, will preside over a party that is structurally divided.”

—CNBC’s Annette Weisbach contributed reporting to this story.