Changing EuropeEurozoneGermanyPolitics

Germany: Elections- a lingering feeling of unhappiness

By September 21, 2017 No Comments

On the basis of the data we collected in Germany over the course of July and August 2017, and our own analysis, we expect the upcoming federal elections to deliver another mandate to Chancellor Merkel, but the currently ruling parties, CDU and SDP, are likely to emerge weakened compared with the 2013 election.

Foreign press attention surrounding this election has focused on the strength of far-right party AfD and its likely entry into the next federal parliament. Our impression is that AfD will indeed make it into parliament, but that this will not be the only – nor the biggest – surprise relative to expectations. We believe that the real winner of this election may well prove to be Die Linke – the far-left party – and that the Greens and FDP will also fare better than in 2013.

Whether the election results will show a better performance from the “bolder” left-wing parties (Die Linke and Greens) or the smaller right-wing parties (AfD, FDP) will have significant long-term implications for taxation in Germany and for the European Project, in our view. A left-wing win would signal a strong emphasis on income inequality, leading to a tax cut for people in the lower income brackets and a tax increase for high income earners and companies; while a right-wing win would imply growing pressure for tax cuts, particularly for households, in our view.

A strong performance from AfD is likely to be interpreted by financial market participants as a worrying sign of growing Euroscepticism even in the very core of Europe. However, we did find that a desire to spend more energy on German domestic policies was common among voters spanning all party support.

We found that enthusiasm for the EU was higher than we had noted in Italy or France, but a high share of the population regrets the Euro versus the Deutschmark (DM), often linking it to a perceived high cost of living compared to the DM days and objections to the ECB’s performance. A high share of people were conflicted over this issue (40%). We see this as a worrying signal that an effective anti-Euro campaign could be successful, given that the undecided voters’ attachment to the Euro was low, in our view.

What is the average German willing to do to nourish the European Project? Fiscal union and full regulatory equivalence are seen as undesirable and/or unviable by the vast majority of those we spoke with. The creation of a European military was better received as a future next step, but still rejected by the majority.

Our conversations about German unification raised two alarm bells for us with regards to Germany and its relationship with the EU. First, economic unification was demanding for both sides and, less than 30 years later, many felt that the process was still incomplete, but the appetite for continuing financing it is running out. Equally importantly, those in the minor cities of the East were concerned about there being few employment and business opportunities, youth emigration and too few businesses. Sounds like déjà vu…

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