German election: Merkel seeks new allies for her fourth term



​The Federal elections in Germany produced a result that was broadly in-line with expectations. Chancellor Merkel will now try to form a coalition, probably with the Free Democratic Party (FDP) and Greens, but from a much weaker position as the protest vote against Europe’s incumbent political leaders continues. Merkel’s former coalition partners, the Social Democratic Party (SDP), also fared badly and have said that they do not intend to be part of the next coalition.

This may be quite unsettling in the short term, as headlines fill with drama about what kind of coalition, at all, that Merkel may manage to form. It is, however, unlikely to change the broadly consensual nature of German politics. In Germany, politicians of whatever hue have done their best to run the economy in a way that preserves jobs and improves the wellbeing of people, rather than pandering to diverse factions within their own party, or those individuals more interested in the electoral timetable. Domestic issues faced in Germany, such as immigration, demographics, and economic growth, are given a higher priority than those issues favoured by the right- or left-wing press. In addition to this, in common with all members of the single currency bloc, the scope to pursue radically different economic policies are limited.

Question marks remain over some crucial issues that Europe’s leaders will need to face. While France’s President, Emmanuel Macron, needs German support to revitalise Europe’s economies, some of Merkel’s coalition partners may be reluctant to see Germany ‘prop up’ those countries that refuse to follow more sustainable economic policies over the long term. UK Prime Minister May’s speech in Florence spelt out all the advantages of being within the EU, but then veered away to try to explain why the UK does not want to be part of it – namely, abiding by a set of rules that have not been agreed by UK politicians or which are not in line with what the UK desires. The challenge that Merkel now faces is to find a coalition partner, or partners, that will enable Germany to continue to more than pull its weight in the EU, but without fuelling the growing protectionist forces, both internally and externally, who would rather see countries pull up their drawbridges and protect the status quo.

Ultimately, if it all comes down to preserving and improving economic wealth, reducing unemployment, investing in infrastructure improvements and living within its means, Germany will favour a quiet consensus. As Chancellor Merkel acknowledged in her press conference, the result means that the task ahead is more difficult, but rather than run away from the challenge, she is more likely to form a consensus to address the issues.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.


Important message