GERMAN ELECTIONS
Following the collapse of Germany’s governing coalition last year, the country is bracing itself for snap elections. With a resurgent right-wing Eurosceptic party set to record large profits, the election could reshape Germany’s political landscape, which is expected to impact other European countries and the financial markets.
- THE POST MERKL PERIOD: GERMANY STUMBLES?
Angela Merkel led Germany for 16 years, and despite many political and economic challenges, she managed to maintain Germany’s dominance in Europe as the leading economy. Merkel chose to bow out in 2021, but the gap left was a difficult one to fill. Olaf Scholz, Merkel’s finance minister, replaced her after his SDP party won federal elections in 2021. Scholz faced numerous challenges, including an ongoing migrant crisis, high inflation, and an energy crisis, and saw growing dissatisfaction with his government.
- THE COLLAPSE OF THE SCHOLZ GOVERNMENT
Chancellor Scholz led a Social Democratic, Green, Free Democrat coalition government, but partners fell out amid an economic slowdown, high inflation, and energy challenges. This culminated in Scholz’s sacking his finance minister, which led to the coalition’s collapse. Scholz called for a vote of confidence, which he lost on December 16.
- GERMAN ELECTIONS: THE RUNNERS AND RIDERS
After the vote of confidence, early federal elections were scheduled to be held on February 23rd. The leading parties include the Christian Democratic Union (CDU) led by Merz, the Social Democratic Party (SDP), led by Scholz, the right-wing Eurosceptic Alternative for Germany (AfD), the Greens, the pro-free market Free Democratic Party, and Der Linke, a leftist party.
- GERMAN ELECTION: THE ISSUES AND OPINION POLLS
Latest opinion polls suggest that the CDU will win the election with around 30% support. However, the AfD is surging and is second at around 22%. The former governing SDP is third with 15.5%, and the Greens are on 12% with the rest in single figures.
The primary issue for most Germans is the economy, and perhaps the two most talked-about subjects are energy and ‘green’ policies and migration.
- GERMAN ELECTION: POLICY STANCES OF LEADING PARTIES, “AfD Danger””
The opposition CDU party is likely to form the next government. The party argues for tax cuts and has a pro-European stance. The CDU states it wants a balance between the economy and ecology. The fastest-growing and most controversial party, the AfD, has focused much of their campaign on migrants and spoken out against European policies, which they say hinder German development. The party states that unless the EU undergoes reform, Germany should consider leaving the bloc. However, the AfD party takes a pro-market stance. Most major parties have rejected forming a coalition with the AfD, considered an extreme far-right party. The SDP could join a coalition and would attempt to maintain existing policies. In the current electoral climate, the Greens might have difficulty getting parties to adopt environmental policies, but they could also be part of a coalition government.
- HOW WILL A FUTURE GOVERNMENT IMPACT THE MARKETS?
From a trading perspective, perhaps the favoured scenario would be a CDU, SDP, and Free Democrat coalition. A CDU-led government would likely cut taxes, which could potentially provide a boost to German stocks. It would also signal that Germany wants to focus on increasing economic growth and to set aside environmental concerns to some extent. The Euro could potentially increase in value as pro-European and pro-growth policies combine.
The AfD joining a coalition may not shock the market as much as it might shock the German public because of the party’s largely pro-business policies. However, a coalition including the AfD could unsettle traders because of its anti-European stance and its extreme position on migration. Worries persist in European countries over the future of the European Union, and if a threat were to emerge, it could encourage the purchase of safe haven instruments such as gold.
Conclusion –
Germany is Europe’s largest economy and is arguably the continent’s leader on the global stage. In many ways the European ‘project’ and the Euro depend on a German economy that is performing well. But even if the country successfully navigates an election, it faces Europe-wide tariffs imposed by an America-first US administration. Additionally, it has to confront the European issue of Russia's war on Ukraine.