NN IP: German election outcome - 'The new power structure should not unsettle the markets at present'

NN IP: German election outcome - 'The new power structure should not unsettle the markets at present'

27 september 2021

Politiek Duitsland
Duitse vlag.jpg

Marco Willner, Head of Investment Strategy at NN Investment Partners comments on the German election results:

In Berlin, there are currently many indications that the next government will consist of a traffic light or Jamaica coalition.

Since a continuation of the grand coalition is not wanted - at least at the present time - the FDP and the Greens can choose their senior partner. In the television program Berliner Runde on Sunday evening, it became clear that the supposedly smaller partners will enter the government negotiations with a lot of self-confidence and that their consent will require far-reaching concessions regarding content and the ministries.

If one compares the chances of success of the traffic light or Jamaica coalition, Olaf Scholz is slightly ahead, as he emerges from these elections stronger within the party and the SPD is 1.6% ahead of the CDU/CSU according to the preliminary official results. Due to the complex situation, it cannot be assumed that the coalition negotiations will be concluded quickly.

An important result of these elections is also that the risk scenario of a red-green-red government did not receive a majority. Such an outcome would have led to great uncertainty in the markets.

Assuming that the option of a grand coalition is off the table for the time being, the markets will pay close attention to the details of the issues on which the junior partners will agree. For example, in the case of the FDP, the question is whether the debt brake will be set in such a way that investments and approval for European projects can be financed.

This is important in order to keep the financing conditions in the European periphery favorable. For the Greens, on the other hand, the questions will be whether the coal phase-out will be brought forward and whether rents will be regulated more. The outcome of the negotiations is likely to lead to movements in utilities and property shares.

The bottom line is that Germany is heading towards a three-party coalition from both political camps. The new chancellor should also stand for continuity. The market-relevant issues will be successively clarified in the coalition negotiations.’’

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