Skyscrapers on the skyline in the financial district of Frankfurt, Germany, on Monday, Nov. 4, 2024. Germany Finance Minister Christian Lindner, leader of the free market-leaning FDP, issued a position paper on Friday calling for tax cuts and a slower approach to emissions reductions.
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Germany’s election result delivered a jolt of optimism to lackluster markets at the start of the week, though the question of whether the new government can deliver promised higher public spending and reboot the economy continues to hang over the country’s beleaguered major industries.
Frankfurt’s DAX index gained 0.6% Monday, outpacing a flat U.K. FTSE 100 and 0.78% loss for France’s CAC 40, while the euro nudged higher against the U.S. dollar and British pound and German borrowing costs were little-changed.
Sunday’s vote delivered a victory for the conservative alliance of the Christian Democratic Union (CDU) and Christian Social Union (CSU). That has set up CDU-CSU candidate Friedrich Merz — a center-right, pro-business politician who serves on the boards of EY Germany and the Deutsche Börse — as near-certain to take over as the next chancellor.
Some uncertainty remains however, with a period of coalition talks ahead and a future in which support of smaller parties will be needed to enact promised policies including reform of Germany’s contentious “debt brake” rule.
“I think what the market is seeing now is some stability, at least we know who won the election, we know who’s claiming it, and then we know who the coalition is going to be based around from here. So I think the market is taking that as a huge positive,” Michael Field, chief equity strategist at Morningstar, told CNBC’s “Squawk Box Europe” on Monday.
A worse market outcome could have seen the CDU fall short of the level needed to start forming a coalition, triggering a “messy few months of parties scrambling around and no clarity for business,” Field said.
The result is positive for the German economy because a two-party “grand coalition” between the conservatives and the Social Democrats (SPD) now looks like a likely outcome, a situation that would expedite decision-making, analysts at Danske Bank said in a note.
Whether it is a two- or three-party coalition that brings in a smaller player such as the Greens — with Merz having ruled out governing alongside the second-place far-right AfD party — the main parties are aligned on policies including bringing down energy prices and investing more in infrastructure, Morningstar’s Field told CNBC, which would see “positives coming through for businesses down the line.”
According to Field, that could deliver a boost to sectors including the German autos industry, the once-mighty sector which has been battered by electric vehicle competition from China, weak domestic demand, U.S. tariff threats and regulation.
“The sector is so badly beaten up… our stance is that it doesn’t take a lot to turn that momentum and shift that slightly in the positive direction,