Almost no-one was surprised when Angela Merkel emerged from September’s Bundestag elections on course for a fourth term as Chancellor – but there was the shock at the scale of support for the hard-right among voters.
Across the world, post-election headlines have been dominated by the fact that the nationalist AfD (Alternative für Deutschland) emerged as the third largest party in the federal parliament, with 13 percent of the seats.
Yet as the dust settles, and investors consider how this might impact on the fortunes of the big hitters in the Germany Dax 30, attention is turning to the nature of the next government.
‘Jamaica’ and the new finance minister
Merkel’s continued leadership presents a level of continuity – and therefore reassurance – regardless of the arrival of the AfD. Yet, her administration is going to take many weeks to put together, leading to a period of uncertainty for a while yet.
Two things are fairly clear, however. Firstly, the new government is likely to be what’s known as a ‘Jamaica coalition’ – named after the party colors of Merkel’s CDU/CSU, the pro-business liberal FDP and the Greens. The Social Democrats, who finished a distant second, have ruled out a grand coalition, opting for a period of opposition to lick their wounds after a post-war record low vote for the party.
Secondly, there will be a new finance minister at Merkel’s side after Wolfgang Schäuble moved on to become speaker of the Bundestag. As the likely second biggest party of a ‘Jamaica’ government, the FDP will get to pick its cabinet post. Having missed the chance to get the finance ministry in 2009, it’s widely expected that it will grab the opportunity this time around, with Wolfgang Kubicki, Alexander Graf Lambsdorff and Werner Hoyer all rumored to be in the running for this key position.
Party priorities hint at next Government’s focus
Yet, while personalities matter, policies probably matter more. Investors will want a sense of what Merkel’s next administration’s policies will actually be with regards to the economy.
While the election campaigns help, many compromises will have to be made. The CSU, the Bavarian sister party of Merkel’s CDU, is likely to have to row back on its bold bid to expand pensions for stay-at-home mums while the Greens might now be able to come good on its pledge to do away with private health insurance.
Yet the German system is used to compromise and there are noticeable foundations on which to build a new consensus. Both the Greens and FDP have campaigned on upgrading the nation’s digital strategy, combating climate change, boosting education and cutting taxes. The FDP has called for a tax-free period for start-ups, the introduction of a venture capital law, a Swiss-style start-up fund, and strengthening the sharing economy in Germany.
All of that looks fairly friendly for business – unless your business model is still wedded to fossil fuels – and should promote confidence.
UK investors can, therefore, look beyond the headlines surrounding the AfD and the current period of coalition building. The election has delivered a sense of stability – with Merkel still at the helm – and looks set to lead to a coalition that is pro-EU and business-friendly. All of that should make Germany a safe bet for investors – and help to continue the strong performance of the Dax 30, which reached record levels shortly after the vote.
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