Germany – labour market reforms unravelling?
Following the initiative of SPD head Kurt Beck, Chancellor Angela Merkel will be under pressure to unwind key parts of labour market reforms enacted in 2004.
The debate reflects a more general struggle between reformers and traditionalists in both, the CDU/CSU and the SPD.
The issue has been brought to a climax ahead of state elections in Lower Saxony, Hesse and Hamburg, where the CDU is ahead in the polls, but the SPD might have a chance of forming a coalition of the left.
The key question for the markets will be, whether the dilution of the past reforms will be offset by deregulation in other fields as requested by the CDU/CSU or whether they will be part of a shift towards the more left-leaning (“big government”) agenda of the SPD-leftwing.
Asset conclusions: if CDU/CSU agenda prevails it should be seen as generally market-positive, but the SPD or Left agenda would weaken Germany’s economic potential, thus negative for stock-market.
© Graham Bishop
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