Back to square one: Grand coalition with chancellor Merkel and modest reforms
One week after the 18 Sep elections which saw the CDU/CSU inch ahead of the SPD by 0.9%, both parties look likely to form a grand coalition; the issue of chancellorship seems resolved in favour of the CDU, with Merkel still the most likely contender, but Roland Koch and Edmund Stoiber waiting in the wings; on policy there only seems to be a significant overlap on taxes and pension reform; labour market reform and health care likely to remain on the backburner.
SummaryConclusions: a grand coalition is unlikely to succeed in curbing the deficit or significantly advance labour market reforms. Expect a political headwind for German assets.
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© Graham Bishop
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