July 3, 2022

Germany is the largest economy in Europe. What if it turns left?

Results of Sunday’s election It is difficult to predict, and it can take weeks or months to form a government. But when the dust settles, polls suggest the new president could be Olaf Scholes of the left-wing Social Democrats, who led Germany’s economy through epidemics as finance minister in alliance with Merkel. Meanwhile, the Greens could have more than double their number in parliament.
SPD and Green of Shoals Can be allied with the non-business Independent Democrats, gaining enough power to shift the country’s economic agenda to the left. Taxation and spending will increase as political leaders double down on digitalization Climate policyThe warning of an increase in government debt may take a back seat.

“The Greens and the Liberals in an alliance will bring with us the innovative forces that have been with us for some time in a German government,” said Carsten Preski, the global head of macro research at ING.

World Banks say While instructing investors to prepare for two possible outcomes, the end result of post-election jogging between parties is far from over. The union, led by Armin Lashet, should be aligned with the Greens and the FDP.

The previous option would mean moving to the left, but less dramatic than the alliance between the SPD, the Green and the hard-left tie link. This decision, which could create more ambitious efforts to redistribute wealth and tax it, will be underestimated by analysts and take investors by surprise.

No matter which compound is responsible, the corona virus must be managed to recover from infection. According to the latest forecasts of the Organization for Economic Co-operation and Development, Germany’s economy is projected to grow 4.6% this year and 4.6% next year after shrinking to 4.9% in 2020.

More recent data indicate that the momentum may slide. The IPO index, which monitors the country’s business environment, fell for the third consecutive month in September, according to data released on Friday. Slow growth in China will be affected by eroded supply chains and rising gas prices.

The withdrawal could put pressure on the country’s new leaders to repeal Germany’s worst austerity measures so they can spend on the domestic economy.

The country is called the “Debt Break” The constitution in 2009 severely restricts public debt after the financial crisis, with a few exceptions. Due to the epidemic, credit rules were suspended until 2023. This allowed German debt to jump, with the country’s debt-to-GDP ratio rising sharply to 70% by 2020.

While such a rate is expected to be higher than annual GDP now compared to the United States, Germany’s centrist parties are eager to bring the country’s public funds back under control. Meanwhile, Greens want to permanently relax credit rules.

UPS strategists Dean Turner and Maximilian Kungel think debt-breaking has become a key principle of German financial conservatism — because it will require a two-thirds majority in parliament to defeat it.

However, they expect new German leaders to find other ways to increase costs to tackle the climate crisis, which has become even more important after this issue. Catastrophic flood Hit the country in July.

“A common agreement for all parties is the need to tackle climate change,” Turner and Kungel wrote in a recent research note. Whatever coalition appeared, they continued, green investment would “rise.”

Coping with the Climate Crisis

Presky hopes that the incoming ruling coalition, whatever its makeup, will develop a special investment vehicle to avoid a debt breakdown and cash in on green initiatives.

However, with a liberal coalition government, some deadlines could be raised.

“[The Greens] Goldman Sachs told clients in a recent note that the precondition for entering government is to accelerate the green shift of the German economy.

The Green Party has called for a 70% reduction in greenhouse gas emissions from 1990 by 2030, compared to the current government’s target of 65%. It also wants to close by the end of the coal mills This decade, instead of 2038, new cars should be without emissions at that time.

This could lead to a confrontation with Germany’s most powerful businesses. In its latest strategy update, Volkswagen (VLKAF) He said he wants 50% of sales to come by electric cars by 2030 and that this will rise to almost 100% by 2040.

How much the government should intervene will create friction among the coalition members.

“The biggest controversy will be: how to change people’s behavior?” Brzezki said. “Are you doing this with incentives and educating people or are you doing this? [increasing] Prices and Expenses? “

A left-leaning government in Germany would lead to an increase in taxes for wealthy Germans, while the SPD proposes a new wealth tax for the super-rich.

But it is unclear how the election will take place – the banks insist – and the conservative CDU still exists, keeping Germany firmly on its current financial and economic path.