Economy, markets would cheer Merkel win

Berlin — Germany’s economy and stock market would cheer a re-election of Chancellor Angela Merkel on September 27, analysts said, but only at the head of a new coalition with the pro-business Free Democrats (FDP).

Polls suggest Merkel is a virtual shoo-in to win a second four year term.

The question to be resolved on Sunday is whether her centre-right Christian Democrats will win enough votes to form a coalition with the FDP.

If they fail, they will be forced into another awkward "grand coalition" with the Social Democrats (SPD), which analysts see as ill-suited to get Europe’s top economy back into shape.

Germany is gradually crawling back onto its feet after being hit particularly hard by the global slump, with output expected to shrink by a whopping five or six percent this year.
Meanwhile, unemployment is likely to rise after the election and the winner will have to grapple with the country’s largest-ever debt mountain.

But the grand coalition’s four years have not been without some achievement in economic policy.

It pushed through a three-point rise in VAT in a bid to rein in the country’s ballooning deficit and created around one million jobs.

Were it not for the financial crisis, Germany might have achieved its aim of a balanced budget by 2010. The coalition also acted quickly to pump over 80 billion euros (118 billion euros) into the economy in the wake of the crisis.

"The Germany of 2009 is stronger than the Germany of 2005," after the last election, Merkel told parliament recently.

Nevertheless, both the markets and the economy would benefit from clearer direction from Berlin, Carsten Brzeski from Dutch bank ING told AFP.

"I think the grand coalition would be the worst-case scenario. Another grand coalition would probably mean another standstill in terms of economic policy for Germany and that would be negative," he said.

Most sectors would benefit from a business-friendly, centre-right coalition, but some parts of the economy will be hoping the SPD remains part of the government, said Martin Lueck, an economist at Swiss bank UBS.

Construction companies, for instance, would profit from the increased public infrastructure spending that a centre-left element in the government would demand, he said.

The high-tech sectors could also surge if the SPD stays in power, as the party has promised to create some four million jobs in growth industries by 2020.

Shares in big utilities, such as RWE and E.ON, could also soar if the SPD is jettisoned from power, buoyed by Merkel’s pledge to extend the operating lives of nuclear power plants, which the Social Democrats oppose.

The election is also likely to have a significant impact on the country DAX index of major firms, analysts said.

Swings in the DAX in the year after an election can be quite severe, although other factors are also responsible.

And according to Tammo Greetfeld, from Unicredit, "this year’s election could assume greater importance for the equity market" given the ongoing economic crisis.

Research by UBS has shown that the market typically rises strongly under a conservative-led government but drops when the SPD is at the helm.

Voters apparently trust Merkel — whose election slogans include: "The clever way out of the crisis" — to guide the economy out of recession better than her rival, Foreign Minister and vice-chancellor Frank-Walter Steinmeier.

According to the Allensbach polling institute, 40 percent of Germans said Merkel is "fitter to solve Germany’s economic problems," compared to only nine percent for Steinmeier.

She also appears to have benefited from the biggest economic story in the run-up to the election: the "saving" of carmaker Opel and the bulk of its 25,000 jobs in Germany.

General Motors picked her preferred bidders, Canadian auto parts Magna and Russian bank Sberbank, barely two weeks before the polling stations opened — to Merkel’s undisguised delight.

Richard Carter/AFP/Expatica