EZA 682: Germany - Politics

24 May 2005

Germany; snap elections in Sep likely pave way for change in govt ending political paralysis
Surprise snap elections in September likely to pave way for change in government German general elections will almost certainly be brought forward by one year to Sep this year, following chancellor Gerhard Schröder’s announcement after the crushing defeat of his SPD party in the North-Rhine-Westphalia state elections. His chances of success seem minimal given the deep rift within his own party on labour market reforms and persistently high unemployment. CDU Angela Merkel’s chances – she will be confirmed as Schröder’s challenger on 30 May – of success are very high. But she faces similar challenges in unifying the centrist and reformist wings of her party. The initial market reaction – with a sharp rise of stocks – seems fully justified. But the scope for further market gains will depend on Merkel’s ability to defend her reform agenda on health, taxes and the labour market against centrist positions around her intra-party opponent and CSU leader Edmund Stoiber.

SummaryAsset conclusions: positive for bonds as well as for stocks; the outlook for a consistent majority in both houses of parliament ends political paralysis, allows market reforms, fiscal consolidation from 2006 onwards.

Contents
.

Figures
.

© Graham Bishop