In case we'd forgotten, Germany's got an election this year too .......

Wednesday 12th April 2017

In case we'd forgotten, Germany's got an election this year too .......

ref :- "Merkel's "Nein" to Pooled Euro Debt Emerges as Election Plank" , Bloomberg Markets

Quite rightly, France's upcoming presidential race is getting all the attention just now as far as matters electoral are concerned. It's a very remote possibility that the French people might have to choose between a right-wing Nationalist (Le Pen) and a Communist-backed left-winger (Melenchon) come the second round of voting on May 7th, but the fact that it exists at all is an understandable cause of raised anxiety levels.

In contrast, there's been considerably less anxiety surrounding the German elections. That's understandable, too ..... for one thing, they're not taking place until Sept. 24th. More to the point, a choice between Christian Democrat Chancellor Angela Merkel and Social Democrat Martin Schultz is hardly on a par with what could theoretically occur in France as far as extreme outcomes go. There are significant policy differences though, and they will come under greater scrutiny over the summer.

Attempting to secure her fourth term, Angela Merkel has long been considered one of the safest pairs of hands on the global political stage. That reputation has helped to boost expectations of continued electoral success, and of late her favouritism has been threatened twice. Her "Welcome All Comers" stance during the refugee crisis could be applauded from a philanthropic point of view but widespread domestic disapproval forced her to abandon the policy. And in January, Martin Schultz's nomination as the SPD candidate sent the party into an unexpected tie in opinion polls.

Heady times for Mr Schultz, but that surge in popularity has not been maintained. Bloomberg suggest that the reason for the waning of support revolves around the thorny issue of pooling euro-area debt. Overwhelmingly, such an idea is a "NoNo" for German voters as it is widely perceived as a method of "mutualizing" Euro area debt, or seen more simply, of getting the richer, more fiscally-responsible nations of the North to pay for the ill-discipline of the Southern co-members.

Mrs Merkel has always been against the idea and said at the time of the debt crisis that she doesn't see any possibility of Eurozone Bonds "in her lifetime". Mr Schultz on the other hand is on record as saying as a member of the European parliament (and at about the same time) that joint bonds would be a good way to reduce the burden on the poorer nations.

That may chime with the SDP's position against the kind of austerity programmes supported by Mrs Merkel and her tigerish Finance Minister Wolfgang Schaeuble, and it may win Mr Schultz friends in Europe. But at home it may equally turn out to have been a fatal error. Even the Finance Ministry, which is controlled by the Social Democrats notwithstanding Mr Schaeuble's hawkish views, failed to endorse a single one of a range of proposals to issue joint euro-area debt and warned against the "mutualization of risks".

Perhaps the most interesting element of this in the long-term is that it is becoming more and more the accepted wisdom that if the EU is to thrive, or even survive, fiscal union will have to part of it.

Perhaps ..... but even if that is the case, the message from the German voter is "Not now .... and not Euro bonds". Unsurprisingly, Mr Schultz is backing down from his previous position but the damage may already be done -- even with five months still to go. He will always be open to the accusation that he would revert to his earlier thinking if elected and besides, U-turns do nothing to present a candidate as clear-thinking and reliable.

So that's Germany, and that's for the future ..... for now, all eyes back to France.


Just in case there's any confusion, please be aware of the difference in the kind of Euro Bonds being discussed here -- suggested government bonds issued in euros jointly by the 19 Eurozone nations,


Eurobonds, a long-established market where a eurobond is a bond denominated in a currency other than the home currency or market in which it is issued. These bonds are frequently grouped together by the currency in which they are denominated, such as eurodollar bonds, euroyen bonds, eurosterling bonds etc.

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