German Elections: the impact for Europe and European Investors
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The upcoming German elections should not present any drastic change for other European
countries or European investors.
We do not know what the Government coalition will be and if some minor parties, like the anti-euro party will
meet the 5% necessary to hold a seat in the parliament, but some points are already well defined:
– In Germany there is a strong consensus against any form of debt mutualisation so we are unlikely to see
any form of Eurobond. That might only happen when and if Europe will have a centralised supervision that will
ensure no overspending. Germany is unlikely to accept and support a fiscal union.
– The banking union process will progress at a slow pace and Germany sees the union more as a long term
institutional structural change and not as a tool to fight the crisis in the short term.
– Both the German public and the majority of politicians believe on the principle of fiscal austerity and low inflation
which doesn’t stimulate consumers spending. This is unlikely to change despite the wishes of both the U.S. and other
European countries to stimulate growth.
German Elections for European Markets
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Investment flows in Europe are back at pre-crisis level. What markets really want now is continuity.For this
reason the re-election of Angela Merkel will be positive for the markets.
In a post-election scenario the new German governments could have more flexibility if needed as there will be
less anxiety about the immediate public reaction.
What I do think it that it is highly unlikely to see a new crisis as the one experience in 2010-2012 which was,
primarily, a crisis of confidence.
Wide Divide
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As highlighted in a recent EY study the divide between northern and southern European economies is widening. For instance
in 2014 unemployment is likely to remain lower than 5.4% in Germany but to peak to 27% and 29% in Spain and Greece.
While as a whole Europe will maintain a steady path to recovery this divide creates opportunities for investors that
select these European countries, industries and sectors that are more likely to recover in the short term.
In Short
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– German elections is likely to result in policy continuity with the same position on Eurobonds, Banking Union and a recovery
based on fiscal austerity and low inflation;
– European markets are likely to benefit from this continuity and another crisis is unlikely;
– Wide divide to remain with substantial gaps in unemployment and growth between northern and southern european economies.