Publication

German election: a shift to the left?

Macro economyEurozone

Germany’s 2021 federal election is happening against an exceptional background. First, the election occurs in the midst of a global pandemic that has affected the global economy and the social systems of most countries, including Germany. Second, the German Chancellor, Angela Merkel, also known as the mother of the nation ‘Mutti’, is stepping down after 16 years in power. Third, she is leaving her party in a more fragile state which has benefited her coalition partner, the centre-left SPD. Finally, the rising urgency to fight climate change has strengthened the position of the Greens. As a result of these developments, the German political landscape is currently facing a transformation, which will most likely lead to a new coalition with different political priorities and a different policy agenda.

  • On 26th September, the 2021 German federal election will be held to elect the members of the 20th Bundestag

  • It is a historical moment for Germany since Angela Merkel will leave office after having been Chancellor for 16 years

  • Moreover, recent polls suggest that her party the conservative CDU – united with its sister party CSU – could lose its position as the largest party after the election ….

  • … instead the centre-left SPD seems likely to take the lead and therefore the helm, although it is a close call and the outcome is surrounded by an exceptional high level of uncertainty

  • The fragmentation of the political landscape means that for the first time in many decades Germany’s next government could consist of three, instead of only two parties

  • If the SPD were to win the election its preferred coalition candidate will probably be the Greens, which has been its coalition partner in earlier federal governments and has also persistently been in the top-three in the polls

  • Therefore, Germany’s political agenda will likely shift towards supporting households and lower income groups and become more environmental friendly, while further European integration would get higher priority and returning to a balanced government budget would get lower priority

  • In case the CDU/CSU (the Union) were to win, a continuation of the current Grand coalition could be the most likely outcome, although it will be much less stable than before

  • Even if the next government were to consist of three instead of only two parties, it will be dominated by parties that have been in government before and are located around the centre of the political spectrum …

  • … therefore, we expect the impact on financial markets to be limited