EZA 905 Report: Germany - Politics

16 July 2009

Germany: election outlook – No edge for centre-right coalition scenario

 

• With less than three months to go until the federal elections on 28Sep, market focus is on the chances of the centre-right parties CDU/CSU and FDP prevailing, thus confirming current opinion polls.
• This outcome should be regarded positive for the capital markets, as it would bring a lower tax burden and cautious reforms in health care and the labour market.
• Of the three main players, the FDP has the strongest commitment to business-friendly reforms, the SPD the weakest.
• In the run-up to the elections we see some room for disappointment, given the likely recovery of the SPD and ensuing increased chance of a revamped grand coalition government.
   

Asset conclusions: current momentum for business-friendly parties CDU/CSU and FDP should be market positive, but risk of disappointment, as we expect the SPD to recover.
 

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