EZA 758 Briefing Note

19 September 2006

Germany: politics

German state elections – protest vote deals blow to Merkel In the state elections in Berlin and Mecklenburg-Vorpommern chancellor Merkel’s CDU slid to historic lows missing the opportunity to unseat incumbent left wing governments. Also the SPD, Merkel’s partner – and rival – in the federal government, made only small gains in Berlin at the expense of its local coalition partner the PDS. This has been seen as a protest vote, focusing anti-grand-coalition sentiment while benefiting the opposition parties FDP and Greens and right-wing NPD. For Merkel the biggest political threat comes from her own party, given the rebellion of state premiers against the health care reform project.

Asset conclusions: negative for the markets, since weak showing in the polls will make both parties less likely to implement economically sound policies which are painful in the short term.

© Graham Bishop