German Elections September 2013

German elections 2013: The four European unknowns



28 August 2013


Although German Chancellor Angela Merkel seems assured of victory, the German elections will be revelatory. The results should bring answers to a number of open questions concerning the future of the economy and of European institutions.

Fabrizio Goria

Since the beginning of the Eurozone crisis, no other event has been as anticipated as the German legislative elections – with the possible exception of the June 2012 European Council meeting. The September 22 German ballot could signal a turning point in the euro crisis. The European Commission says it is untroubled. Investment banks are counting on Angela Merkel's victory but remain cautious. This is because the outcome of four variables remains uncertain: the banking union; growth within the Eurozone; the future of Greece; as well as that of the single currency. All of which must go through Berlin.

Angela Merkel is the frontrunner. According to the most recent opinion polls, taken by Emnid, Forschungsgruppe Wahlen and Infratest dimap, Merkel's party, the Christian Democratic Union (CDU) is credited with 40 per cent of the vote, while the opposition Social Democratic Party (SPD) led by Peer Steinbrück, should garner 25 per cent. This gives the chancellor a comfortable safety margin. According to Deutsche Bank, "Merkel's victory is a given".

This view is now shared by Morgan Stanley, but until May, the bank believed that there would be a massive sell-off in the Eurozone after the German elections. If it now believes otherwise, despite the weak fundamentals in the area, it is because liquidities continue to flow on international financial markets thanks to the Federal Reserve, the Bank of Japan and the Bank of England. The new financial order – composed of quantitative expansion, low interest rates and extraordinary measures – could thus also be profitable to Germany and consequently to the Eurozone. Furthermore, investors will not necessarily engage in a massive sell off after September 22.

In the hallways of European institutions, tranquillity reigns

In the hallways of European institutions, tranquillity reigns. "All this excitement around the German elections exists only for journalists. The path taken by the EU to exit the crisis is set and clearly defined," a Commission official told Linkiesta: In other words, even in the event of a Steinbrück victory, little would change because "the long-term goal remains that of a more-solid-than-ever Europe and Eurozone," he says. The official admits that "various mistakes were made when the Eurozone was devised," but believes that if the EU remains on the path to which it committed itself in 2011 with the creation of the European Financial Stability Facility (EFSF), it will be able "to improve the system as a whole by the end of the decade". Will this actually come to pass?

A turn for the worse?

The new European structure seems to be missing something. The current paralysis of the financial markets is due to transactions conducted over the past year by the European Central Bank (ECB), notably the Outright Monetary Transactions (OMT) programme by which treasury bonds are acquired in secondary, sovereign bond markets to boost countries under pressure. Two hedge funds, however, Brevan Howard in London and Bridgewater in the United States, believe that the German elections will become a turning point in the crisis – for the worse. For Brevan Howard, a Merkel victory may slow down the reform process in the Eurozone. This is an understandable fear given the snail's pace at which reforms were carried out in the past two years. The blame lies with the Bundesrat or Federal Council, which must approve each of Germany's administrative expenses, including each contribution to the bailout funds for member states, to the European Financial Stability Facility and to the European Stability Mechanism (ESM).

Many issues remain unresolved. The first is the banking union

Many issues remain unresolved. The first is the banking union. Or better yet, a system that would put EU banks under the supervision of the ECB. The aim is to avoid jolts linked to opaque positions, partially protected by national financial authorities. As indispensable as it is slow to implement, a banking union must overcome two hurdles: the reluctance of German banks to submit to the control of the ECB and Berlin's multiple doubts regarding the European deposit insurance fund. These are precisely the two points that could soon become major differences between Germany and the other members of the Eurozone.

Recalibrating the Eurozone

The second main difficulty concerns recalibrating the relationship between the core of the Eurozone and its margins. [...] It will also be up to Berlin to find a new development model for the Eurozone, in particular to battle what economists consider a true plague – unemployment.

And then there is Greece. The viability of its sovereign debt remains a mirage, and a growing number of voices say that so is another restructuring package. This time the "haircut" – the devaluation of the market value of bonds – would affect public creditors. [...] The haircut would involve 70 per cent of Greek bonds, which corresponds to the portion held by public institutions from the ECB to the International Monetary Fund (IMF).

Finally, the last major issue: how to redesign the Eurozone? If, on the one hand, a banking union can be a major step towards future financial stability, on the other hand, the priority is to redesign the structure and perhaps the composition of the Eurozone. That would also imply a wide-reaching revision of European institutions and an eventual transfer of sovereignty away from the member states. The problem, in that case, would be to convince German taxpayers.

This will be a difficult task following the bailouts of Greece, of Ireland, of Portugal, of Cyprus and of the Spanish banks. Having said that, in recent months, Angela Merkel has enjoyed a greater aura than in the past. Will this be sufficient to allow investors to rest easy? Probably not. Not unless Berlin actually does decide, through clear and determined action, to take the head of a disoriented Eurozone.

Angela über alles



30 August 2013
Frankfurter Rundschau Frankfurt

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Sweet dreams for Angela Merkel. The label on the bottle reads: Growth
Horsch

Out on the campaign trail, the Chancellor has been stressing the track record of her government. It’s a strategy that she hopes will keep her above the political debate and steer her away from controversy. Excerpts.

Holger Schmale

At the end they stand on the little stage set up on the outskirts of the historic market square of Lübeck and sing the national anthem. Angela Merkel sings robustly, CDU Secretary General Hermann Gröhe moves his lips just a little, and together with the local bigwigs of the party, they look out over a crowd of 2,000, getting up from their little benches. It’s the end of a campaign rally, a rally like no other party in Germany puts on.

Only the Christian Democrats hold on to this national finale tradition. It shows a last spark of the conservative attitude, which used to distinguish the CDU, but has now been quite lost under their leader, Angela Merkel. Some supporters regret that. This public commitment to the country may go some way to reconciling them.

The party fuss is an annoying inconvenience. At the same time, the appropriation of the national anthem by the CDU leads directly to the central question of this election year: is the campaign Angela Merkel is leading even a campaign of the conventional kind? A campaign in which the leader of the CDU disputes issues with the other parties, in which she argues, talks politics, does battle? Or is she succeeding, even in this time of intensified political debate, in steering clear of the disputes among the parties? Can she, even during the election campaign, wrap the country in a mantle of self-satisfied well-being oblivious to everything around it?

Other parties a sideshow

Merkel has become the “Queen of Germany”, as Merkel-watcher Dirk Kurbjuweit dubbed her recently. And that is how she stands on the stage in Lübeck. Does she stand for the CDU? From far back. But she stands, above all, for Germany – that’s the message. Everyone can and everyone should vote for her; the whole fuss about the parties is an annoying sideshow. That’s what her speech focuses on, in this market square of a decidedly social democratic town where no CDU candidate has won a seat in the Bundestag since time immemorial. Parties do not come up in her talk. She does not even mention the CDU, nor the SPD and certainly not her challenger, Peer Steinbrück, whose name she has not uttered in public since his nomination as the Social Democrat candidate.

But she also omits many other themes that actually could and must be part of such a campaign speech. The NSA affair merited not one word from her; she skates over complicated issues such as the problems of the energy volte-face, and on the subject of minimum wage she always strives to clarify the differences with the “competitors”, as she calls the other parties.

Merkel skillfully picks up on the disillusionment of many, who often perceive conflicts over political programmes and different approaches as nothing but partisan bickering. That without such conflicts democracy atrophies, that disputes can be also fruitful, she blanks out. She is tuned into a widespread mood: the past four years have been good years, so why raise taxes now? Let’s carry on as we were before, shall we?

Iron Chancellor

After half an hour the Chancellor reaches her conclusion, and it’s an elegant one. Come election day, she says, her own future and the future of the other candidates are secondary worries. “First and foremost, it’s about your future. You will decide on that with your vote.” Merkel does not by any chance try to woo that vote by calling out: Vote CDU! No, she simply says delicately: “I invite you” to vote. The reason: “I’d like to stay on as your Chancellor.” One cannot really accuse her of whipping up the masses. In the CDU there is a worry that such speeches do very little to stir any enthusiasm among her own troops.

The governing party, out front in the polls, is naturally steering the spotlight onto their Chancellor in the election campaign; it’s a tradition in the CDU. “It all comes down to the Chancellor” was the party’s billboard slogan for Kurt Georg Kiesinger in 1969. But Angela Merkel is another matter. She dominates her party far more than the perennial leader and Chancellor of the 1980s and 1990s, Helmut Kohl, ever managed to do. Kohl had to render homage to powerful princes of the CDU and even fend off an attempted coup from inside his own leadership circle. Merkel, in the 13th year of her chairmanship, need fear no such revolt.

As always at election times, right now she is working hard to come across as a little softer. Between elections, she is the rather unapproachable helmswoman of state, the Iron Chancellor who fights on the peaks of the world for Germany’s interests. It is a part of her fame. The doubts as to whether the country could be run by a woman, and a woman from the East on top of that, have long since slunk away.