In Germany, the traffic light is on green

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For nearly 16 years, Angela Merkel has been at the helm of Europe’s largest economy. There are elections on September 26, and German politics is suddenly anything but dull. For a while before the summer, it looked as if the Greens would become bigger than CDU/CSU. There was therefore plenty of speculation about a black/green coalition between CDU/CSU and the Greens. Both Armin Laschet of the CDU and Annalena Baerbock lost considerable popularity over the summer. At CDU/CSU, a mouthpiece scandal played out earlier this year, in which two party members pushed back tons of commissions. More recently, Laschek stood smiling while visiting the severely flood-affected Erftstadt. CDU/CSU is likely to post the worst election result in over 70 years. Anna Baerbock of the Greens is increasingly cornered by allegations of plagiarism. This has caused previous mistakes in the campaign, such as the polishing of her resume, a number of embarrassing slips of the tongue, and a bonus that previously went unmentioned, to be blamed on her.

Germany has an electoral threshold of 5 percent. This ensures that relatively few parties make it into parliament. Nevertheless, this time it is likely that there will be a coalition of at least three parties. CDU/CSU, the Greens, and the liberal FDP could together form the so-called Jamaica coalition. Another possibility is the Traffic Light coalition of the Greens, FDP, and the socialist SPD. Indeed, thanks to Olaf Scholz, the SPD is ahead of CDU/CSU in the polls for the first time in 15 years. Olaf Scholz is the federal finance minister and vice-chancellor in Merkel’s fourth cabinet. He is increasingly seen as the obvious successor to Merkel. Scholz is boring and reliable. However, these are qualities that fall well with the German voter: continuity, experience, and predictability. He is also called the Scholzomat because of his information-dense, dry speeches. But he is the de facto crisis manager during the corona crisis. He was quick to come up with aid money for businesses. Scholz was also popular when he was still mayor of Hamburg, where he got things done that other cities seemed unable to do, such as building enough houses. But Scholz, as finance minister, is also responsible for Bafin, the German financial regulator. And of course, it is responsible for the failing supervision of Wirecard, with the painful detail that employees of the supervisor invested in Wirecard. In other European countries, it is impossible for employees of a regulator to invest in companies under the same supervision.  Bafin employees had a personal financial interest in this now-bankrupt German fintech company.  

The big question is what a Traffic Light coalition means for investors. First, Scholz is no replacement for Merkel. He has shifted to the left in recent years, with Scholz paying more attention to the growing gap between winners and losers. He emphasizes opportunity inequality, social security, and housing. Scholz also helped push the European Recovery Plan and the global minimum corporate tax rate of 15 percent. With a Traffic Light coalition, it is likely that Europe will become more powerful. For Scholz, the nation-state may disappear. Europe will also get more financial space from Scholz where the recovery plan will no longer be seen as a one-off. You can also count on him to fully embrace Keynesian policies. Socialists are simply good at spending money that does not belong to them. Furthermore, the European Green Deal will get a boost from this coalition. Since the Brexit, German power in Europe has clearly increased. Together with France, Germany decides on the European future. Count on more liquidity, higher public investment, and more relaxed budget standards. So also count on a weaker euro and higher CO2 prices. Scholz is not a fan of cryptocurrencies, but he is a supporter of a digital version of the euro. The coalition talks in Germany will take quite some time. Last time, it took about five months to form a new government. If the talks drag on this time past December 16, Merkel will overtake her mentor Kohl as Germany’s longest-serving chancellor.

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