Angela Merkel, arguably the most powerful politician in the EU stands for re-election for a third term on September 22. She hopes to continue the current coalition of her conservative Christian Democrat Union (CDU) with the pro-business liberal democrats (FDP). Competing with her is Peer Steinbrück of the center-left Social Democrats (SPD), who was also finance minister in Merkel’s government. His preferred coalition partner are the Greens. “Angie,” as Merkel is affectionately known, is hugely popular, but her party less so. Opinion polls now see a neck-and-neck race between Merkel’s coalition and the combined opposition, with recent momentum in favor of the Chancellor. The most likely election day scenarios are (1) the continuation of the current government (we think 50% chance), (2) a grand coalition of the CDU and the SPD with Merkel as Chancellor, as in 2005-2009 (30%) and (3) the scare scenario of SPD and Greens teaming up with the former communist Left Party (10%. The remaining 10% probability we attach collectively to various other coalition scenarios involving the mainstream parties).
The election is important for Germany’s economic future, as the parties diverge widely on important issues such as taxation. But global investors will rightly be much more concerned about the potential impact on future Eurozone policies.
Germany’s parliament (Bundestag) and the European Central Bank have proved to be the key back-stops of the Eurozone. When ECB president Mario Draghi announced on July 26, 2012 in London that the ECB would henceforth stop bond market panics in reforming Eurozone countries, it was rightly touted as a turning point of the Eurozone crisis.
Similarly, when Merkel traveled to Greece that October, she signaled that she had made up her mind to do everything necessary to keep Greece in the euro and soon ended speculation about a first country exiting from the Eurozone. That further stabilized confidence in the euro’s future.
Full Article: Elections in Germany: A Non-Event for Europe | Sharnoff’s Global Views.