Elections in Germany are getting closer - Scholz on the attack

The first television debate of the three main candidates (Ger. Top candidates) confirmed the current direction of the German election campaign. The SPD is gaining ground, in most polls ahead of the Greens, by contrast The CDU / CSU continues its decline. However, the race is very even. In our opinion, the future government will include a coalition of three groups led by the center-right alliance CDU / CSU or the center-left SPD. We believe there is a slight possibility that a future chancellor German will be the representative of the Green Party. In the context of economic implications, we expect German fiscal policy to become somewhat more expansionary after the elections. However, reform of the "debt brake" introduced in 2009 after the global financial crisis is unlikely.

About the Author

Christopher Dembik - French economist of Polish origin. Is a global head of macroeconomic research at a Danish investment bank Saxo Bank (a subsidiary of the Chinese company Geely serving 860 HNW customers around the world). He is also an advisor to French parliamentarians and a member of the Polish think tank CASE, which took first place in the economic think tank in Central and Eastern Europe according to a report Global Go to Think Tank Index. As a global head of macroeconomic research, he supports branches, providing analysis of global monetary policy and macroeconomic developments to institutional and HNW clients in Europe and MENA. He is a regular commentator in international media (CNBC, Reuters, FT, BFM TV, France 2, etc.) and a speaker at international events (COP22, MENA Investment Congress, Paris Global Conference, etc.).

Scholz on the attack

Olaf Scholz

The clear winner of the latest TV debate is SPD's Olaf Scholz. According to the Forsal poll published shortly after the debate, 36% of viewers said that Scholz «he definitely won»In the debate, compared to 30% of the votes for Green candidate Annalena Baerbock and just 25% for CDU / CSU candidate Armin Laschet. The audience's answer to the question was even more clear: "Who are you more likely to entrust the leadership of the country to?". 47% voted for Scholz, 24% for Lascheta and 20% for Annalena. The answers to the question were similar: «Which of the candidates you found the most pleasant?». The results confirmed Scholz's position as the most popular candidate (38%), while the worst result in this category was achieved by Laschet (22%). Many voters in recent weeks have recognized Scholz as the only obvious successor to Chancellor Angela Merkel. Unlike Laschet or Baerbock, he has not personally made any mistakes since last May when SPD delegates overwhelmingly chose him as a candidate in the September elections. In addition, Scholz has demonstrated strong leadership skills during the flood crisis. This clearly had an impact on the survey results of the Social Democrats (see the chart below).

«Jamaica» or «traffic lights»?

As election day approaches, the risk that the outcome will prove inconclusive increases. The only certainty is that the future government will be a coalition of three parties. There are two possible arrangements within the coalition: the "Jamaican" coalition (CDU / CSU, Free Democratic Party and the Greens) and the "traffic light" coalition (SPD, Greens and Free Democrats). The decisive vote in these elections will belong to the Greens and the Free Democratic Party, which supports entrepreneurs. Traditionally, the Greens are politically closer to the SPD, while the Free Democratic Party ranks closer to the CDU / CSU. However, nothing is decided yet. In our opinion, a continuation of the grand coalition that has ruled Germany in recent years is unlikely. Most of the respondents to the polls reject this possibility. It should be expected that the negotiations on the formation of the future government will be long and intense. Chancellor Merkel, who is coming to an end, may remain in office until the end of the year.

A slightly more expansionary fiscal policy

Regardless of the outcome, we do not anticipate a fiscal revolution in Germany after the elections. The necessity to form a tripartite coalition means far-reaching compromises. There is a risk that little will be done by the next government. Our baseline scenario assumes that German fiscal policy will be somewhat more expansionary in the coming years and will focus on green investments, particularly in the event that the government is joined by the Greens - which is likely given recent polls. It is possible to create a special purpose fund for green investments. However, for example, the introduction of the property tax is by no means a foregone conclusion. A reform of the "debt brake" that limits federal government net structural lending to 0,35% of GDP is unlikely as it would require a constitutional amendment. However, more gradual actions are possible.

What you should pay attention to

In addition to the polls, we are currently focusing on the upcoming TV debates on September 12th and 19th. This is still the beginning of the campaign. The main candidates go head to head. Two upcoming debates could completely change the dynamics of this race.