Germany, Rates And FX Markets: Preparing For The Elections

With less than five months to go before Germany's elections, the country's political landscape is preparing for both an exciting campaign and final vote. Fiscal spending and further European integration are key topics for markets. They could bring the end of negative yields and greater inflow into the euro.

Elections, Germany, Flag, Bundestagswahl, Bundestag


The most open election in decades

In September, the German elections will be the first in decades in which the incumbent chancellor will not be running for re-election - an essential element to understand the current dynamics.

Angela Merkel is still one of the most popular politicians, and her party, the CDU/CSU, has long benefitted from the so-called “Amtsbonus”, the advantage of incumbency. With Merkel not running for re-election and growing frustration about the government’s mismanagement of the current phase of the pandemic, the CDU/CSU has dropped significantly in the polls. The latest controversy about who will lead the party into the elections seems to have contributed to fading electorate support.

Since Tuesday, it has become clear that the CDU/CSU will be led into the elections by Armin Laschet - the CDU party chairman and minister-president of North-Rhine Westphalia.

For the Greens, it will be Annalena Baerbock (if formally approved by the party assembly). Simultaneously, the SPD had already nominated the current finance minister Olaf Scholz as the party’s candidate for Chancellor. While the CDU/CSU was clearly ahead of the other parties last year when the pandemic was considered highly supportive for the executive’s popularity, recent polls have seen a dramatic decline in the party’s electorate support.

The open controversies and struggle between Laschet and Bavarian minister-president Markus Söder on the political leadership clearly contributed to the drop in the polls. According to the latest polls this week, the Greens have caught up the CDU, with the CDU dropping to a record low of 21% in a national poll, while others still put it ahead by a small margin.

Remember that in the 2017 elections, the CDU still had 32.8% of the popular vote.

Recent polls highlight the weakness of the incumbent CDU/CSU/SPD coalition

Sources: Allensbach, ING

In our view, these polls have to be taken with a large pinch of salt as the latest developments highly influence them.

Some political commentators have already warned that the combination of a weak party with a strong and popular lead candidate can work, but that the combination of a weak party with an unpopular lead candidate is risky. But don’t underestimate the support for the CDU, no matter how popular the lead candidate might be.

Even if other commentators have argued that Söder might have been the better campaigner for the CDU, but Laschet could be the better chancellor, with potentially more skills in managing a coalition. With the “Amtsbonus” of Merkel gone, the CDU/CSU and Greens are likely to be closer than ever in the final election results in September.

1 2 3 4
View single page >> |

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.