He was defeated by deputy leader Ralph Brinkhaus in a 125 to 112 vote.
A journalist from Der Spiegel commented: "Merkel era slowly coming to an end".
The headlines as they come in:
- MERKEL'S ALLY VOLKER KAUDER UNEXPECTEDLY LOSES VOTE AS HEAD OF HER CONSERVATIVE PARLIAMENTARY GROUP IN GERMANY'S LOWER HOUSE
- MERKEL PARTY SPOKESMAN CONFIRMS DEFEAT OF FAVORED CANDIDATE
- MERKEL SUFFERS UNEXPECTED DEFEAT IN PARLIAMENTARY CAUCUS GROUP
- MERKEL'S CANDIDATE FOR BUNDESTAG CAUCUS LEADER DEFEATED IN VOTE
As of now, it is unclear what the consequences will be for Merkel and her ruling coalition, but if there is one thing Europe does not need, it is even more political chaos, especially in the country that has - so far - kept the rest of Europe together.
For now there has been no market reaction, although the EUR has come off its session highs after the report, when it was rapidly approaching 1.18.
Comment: