EZA 706:Briefing Note:

18 November 2005

Germany: Politics
Germany’s emerging Grand Coalition – fiscal consolidation and slow reforms Completion of minister candidate list kicks off formal coalition talks between the CDU/CSU and the SPD. Inauguration mid-November (earliest). List of ministers underlines the weak position of chancellor-designate Angela Merkel, having to accept an SPD overweight in terms of number of ministers as well as the ministerial proposals of archrival Edmund Stoiber. Stoiber as economics minister and the SPD finance minister designate Peer Steinbrück seem to stand for fiscal consolidation and modest pace of economic reforms. However the coalition parties’ target of a 1.2% pa cut in the structural deficit appears very ambitious. The key issue for the survival of the grand coalition will be Merkel’s ability to re-invigorate the reform debate, notably on labour markets and social care.

SummaryOur central view remains that a grand coalition is unlikely to succeed in curbing the deficit or significantly advance labour market reforms. Political headwinds for German assets.

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© Graham Bishop