EZA 914 Report: Germany :Politics – Election Flash - pro business coalition voted in
01 October 2009
- The German federal elections on 27Sep brought an unexpectedly clear endorsement for a pro business coalition of CDU/CSU and FDP at the expense of the SPD, Merkel’s partner of the outgoing grand coalition.
- Despite the historic gain of the pro business FDP (slogan “private first, state second”), whose share of the votes rose by 5% to near 15%, the vote should be regarded a vote for stability and reliability rather than a strong mandate for market reforms. The incoming coalition seemed a more viable government option than the outgoing CDU-SPD administration, since the SPD had seen its constituency eroded for some time by Left voters. This made the party prone to a substantial shift to the left, abandoning many earlier policy achievements.
- Still the success of the FDP implies that the drive towards economic reforms, seen under the former centre-left government until 2005, is likely to resume.
- Key policy changes can be expected on
- taxes: simplifications of income taxes more likely than cuts
- fiscal policy: fiscal retrenchment will be slower than planned under outgoing SPD finance minister Steinbrück
- labour market policy: job mediation by the central labour office might be replaced or superseded by more private initiatives; more flexible dismissal laws will not be ruled out; minimum wage policies replaced by minimum income policies.
- Health care: the public health care funds will be questioned or replaced by more competition among insurers
- Sunday’s elections helped facilitate the political environment for reforms in two more ways:
- The new government coalition will be supported by a coincident majority in the upper house. State elections in the northern most state Schleswig Holstein – synchronised with the federal vote – seem to have endorsed a wafer-thin majority for the CDU. A coincident pro-business majority in both houses of parliament was last seen at the time of German unity (1991).
- In contrast to the CDU, the CSU, its more interventionist sister party got routed in Bavaria. Its share of the vote fell to a post war record low, undermining its claim to challenge Merkel’s policies of small government.
- The election outcome can be regarded positive for the capital markets, notably for German stocks and for the euro. For bonds the environment might become somewhat more difficult.
Please see attached the briefing note from Michael Clauss on the election results including charts in the attached pdf.
A more detailed report on the implications for policy will follow this week.
Dr Michael Clauss: Germany Politics / Economy / Equities Sectoral Analysis
Tel: +49 89 64254046
michael.clauss@eurozoneadvisors.com
Discussion Partners
John Arrowsmith: ECB / Regulatory
Tel: +44 7720 59 1726
john.arrowsmith@eurozoneadvisors.com
Dr Michael Clauss: Germany Politics / Economy / Equities Sectoral Analysis
Tel: +49 89 64254046
michael.clauss@eurozoneadvisors.com
Jacques Lafitte: France Politics / Brussels
Tel: +32 473 934 664
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