20 September 2005

EZA 700 : Germany Politics

German election stalemate – Jamaica as a viable alternative to the Gerhard show?
The result of the 18 Sep general elections brought an unexpected decline for the CDU share of vote to a mere 1% lead over chancellor Schröder’s SPD, implying a stalemate for the German political camps. A CDU/CSU led coalition with FDP and Greens, led by the CDU head Merkel, looks more likely than a grand coalition, given Schröder’s demand for chancellorship. This would put Merkel’s ability to bridge political cultures between the FDP and the Greens to the test. Jamaica coalition is likely to be more positive for economic reforms – ie labour market and taxes – than a grand coalition. In the meantime stock markets’ uncertainty on the coalition outcome and its economic program implies underperformance in general and for some sectors in particular.

SummaryAsset conclusions: The Euro and the German stock market had been expected to be the main victims of the market-unfriendly election result. Both have kept up remarkably well so far. The main reason for this positive view might be the optimism of business leaders, who – according to most comments – still expect a stable government, led by the CDU. They might feel encouraged by a flash post election poll that a CDU led “Jamaica coalition” is gaining popular support and has almost caught up with the Grand coalition. But expect more rather then less volatility in the weeks to come.

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© Graham Bishop