A little over two weeks after vote, in Germany the expectation and anxiety for what will be the outcome of the electoral appointment on September 26 is reaching new heights. The polls continue to keep all candidates on their toes and in the end it will be the details that will make the difference on the results of these very important elections that will see Chancellor Merkel give way to a successor after 16 years. To date, almost any coalition is possible and this for various experts in the financial sector adds to the tension on the markets that prefer stability scenarios in the countries.
The consensus view
The view of consent, as we said, it is quite nuanced. The acronyms related to the colors of deployments politicians Germans: Semaphore (SPD, FDP, Die Grünen), Germany (CDU / CSU, SPD, FDP), Jamaica (CDU / CSU, FDP, Die Grünen), Kenya (CDU / CSU, SPD, Die Grünen) and so on. In addition, the themes of the “fiscal brake” are emphasized rather than participation in NATO, the role that Alternative für Deutschland could play, a party with positions sometimes considered extreme, but not entirely unpopular in the less affluent Länder, is also often underestimated.
The weight of inflation
One of the issues that could affect and shift the balance is that ofinflation. It is no mystery that the German public is opposed to monetary policy from Frankfurt. In particular, negative interest rates are seen as a mechanism for expropriation of private assets, so much so as to motivate ECB herself to publish in 2015 a pamphlet with the provocative title “Critique of Accomodating Central Bank Policies and the Expropriation of the Saver”. The current flare-up of inflation takes place in a landscape that is already hostile to the banking world, especially if we consider that only 51% of German households own properties and that their asset allocation reflects on average a characteristic risk aversion. equity. Fiscal policy closes the circle: The drift (right or wrong) towards a sharing of the public debt at the level of the Member States of the Union and the huge amount of public projects within the Next Generation EU program, are an issue that is not convincing neither German public opinion nor that of the so-called “frugal” countries.
For this, the price growth it can be a crucial factor for the outcome of the German vote. Crucial in the sense that it could remove the consensus from those political forces that are most aligned with a pro-European view (ie the CDU and the SPD), thus keeping the FDP, AfD and some fringes of the CSU at stake. But let’s not forget the Green Party (Die Grünen), which hypothesize a mega-budget of 500 billion euros and a relaxation of the safeguard clauses anchored in the Constitution, in clear contrast with the solidarity of the European debt.
The post Merkel
As if that were not enough, there is also the departure of Angela Merkel to make this year’s elections much more uncertain than previous ones. In this unusually uncertain election, even very small variations in voting behavior could completely change the result finale. Parties must reach a minimum threshold of 5% of the votes to be represented in Parliament, but the votes of small parties are in any case important for their impact on the so-called “coalition-building arithmetic”. Due to this arithmetic and the relative strengths of each of the three main German parties, there is room as we said for different potential governing coalitions and this means that the exact composition of the final coalitions is critical, because it will determine the relative political weights of the parties. within the government.
It scenario more bullish for investors it would be a stable German government with an unprecedented drive towards fiscal expansion and Eurozone reform. This could lead to a strengthening of the euro, a rise in equity sentiment and a narrowing of peripheral spreads in the days following the elections. The result more bearish instead it would be an inconclusive election with the most credible coalitions failing to secure a solid majority either at the polls or in talks to form the coalition. At the moment, the election results depend on small differences in voting behavior and, as a result, investors should prepare for a substantial surprise on the day of the results.
Tips for investors
So what does this all mean for a investor European? This is certainly a picture that suggests staying invested in the market equity, where the preferable sectors at this stage are the most cyclical, such as energy and financials, together with pharmaceuticals, which offers recovery potential along with a defensive profile. Furthermore, these elections will confirm the importance of sustainability as a growth strategy for companies and investors in the coming decades. Only the verdict of the polls is awaited, to understand the near future of Germany but also that of Europe.