Germany: Merkel seeking her fourth term - Rabobank

In Germany, Angela Merkel is seeking her fourth term as Bundeskanzlerin in the national elections this Sunday, and with three recent state election wins in a row for her Christian democratic party, she is full steam ahead to strengthen her appearance as a haven of stability in an unstable world, according to analysts at Rabobank.

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“This is being welcomed by financial markets. With a contentious Brexit, an unpredictable President Trump, the two strongmen Erdogan and Putin, and two close defeats of populism in France and the Netherlands, market participants probably already have more than enough on their plate.”

“The brief surge in the polls that the social-democratic and pro-European SPD enjoyed after it chose Martin Schulz as its front-runner signalled that the Germans possibly would have liked to see a fresh face, but certainly not a radical change of Germany’s course. We expect to see confirmation of this on Sunday, but the recent polls show that the Alternative für Deutschland may emerge as the biggest opposition party in the Bundestag. This might reel markets, but keep in mind that they are then expected to suffer the same fate as the Dutch Freedom Party, i.e. political isolation.”

“Even though it will probably take a while before an agreement is reached, we still regard a renewed Grand Coalition between CDU/CSU and SPD as the most likely. This goes against both parties’ first preferences but neither may have a choice. The FDP, which remains Merkel’s partner-of-choice, is unlikely to deliver a joint majority. A combination with the Greens, or a ‘Jamaica’-coalition with both FDP and the Greens, seems too risky from the SPD’s point of view. It can’t afford staying on the sidelines as the next coalition will have to make profound choices about the future of European integration and on how to spend Germany’s bulging fiscal surplus.”

“The polling stations close on Sunday at 18:00 CET sharp and the exit polls should give a pretty good idea of the seat count and possible coalitions before the forex market opens.”