Analysts and business leaders on Monday were anxious to see a resolution to Sunday’s election deadlock, urging chancellor Gerhard Schröder’s Social Democratic Party and Ms Angela Merkel’s Christian Democratic Union to resolve the political chaos quickly. Most voiced hopes that an early resolution would help minimise instability in German and European markets.
José Manuel Barroso, the European Commission president said: “I have a duty on behalf of the European institutions to urge Germany’s political leaders to a solution as soon as possible that is stable for Europe.”
His remarks were echoed by analysts and business leaders, fearing the negative effects on the German economy and European markets.
Mr Thorsten Polleit, an analyst at Barclays Capital, felt that “the outcome clearly shows that the German electorate did not deliver a clear mandate to either party to push through reforms, and as we see it hopes for further far-reaching changes have been severely dampened.”
Mr Ian Stannard, a currency strategist at BNP Paribas, warned that the deadlock would have a negative impact on the euro: “The result is the worst possible as far as the euro is concerned as none of the natural coalition groups have enough votes to form a majority government.”
Also voicing concerns about the euro, Mr Mitul Kotecha, a strategist at Calyon Corporate and Investment Bank said: “German political uncertainty, taken together with the likelihood of a rate hike from the Fed tomorrow and a hawkish statement regarding the pass through of energy prices, suggests that the euro will remain under downward pressure this week.”
“The market had started to believe that Germany could inspire restructuring policies in big European countries,” said Mr Christophe Donay, a strategist with Kepler Equities in Paris. “The result of yesterday’s elections has completely buried the market’s big hopes.”
Besides affecting the euro, analysts at Calyon Corporate and Investment Bank said: “The German election outcome is negative for Central and Eastern European currencies as it’s been adding to the EU political crisis that has been developing since the rejection of the EU constitution.”
The results would have disappointed investors, who, according to Mr Michael Raab, a Bank Sal Oppenheim analyst, “were putting money into Germany in the past month on the hope of seeing big-time restructuring here. We had major net inflows driven by these hopes, in particular from overseas.”
Views on whether Germany should opt for a grand coalition were mixed.
Mr Hannes Hesse, head of the VDMA machinery industry association, felt that “there is no sensible alternative to a grand coalition”.
“This election result is a disaster for German business, in the short term and in the long term,” said Mr Nikolaus Schweickart, chief executive of Altana, the pharmaceutical and chemical group. “A grand coalition seems to be very likely because there is no other realistic alternative. But a grand coalition means deadlock.”
Mr Giuseppe Amato, market analyst at brokerage Lang & Schwarz said: “Investors will be wondering whether the SPD or the CDU will be calling the shots in a grand coalition, which means uncertainty.”
Domestically, businesses and analysts are of the opinion that a grand coalition would be the likely outcome and should be set up as soon as possible. In the meantime, they fear that businesses would suffer from the uncertainty.
“The market had priced in nuclear [profit expectations] and then some,” according to Mr Chris Rogers, an ABN utilities strategist. “There will be an extended period of uncertainty. The best case scenario is for a grand coalition, the worst case would be for the Greens to be in there.”
Mr Stefan Schneider, chief economist at Deutsche Bank research, said: “It is not a very favourable outcome. The hopes from the corporate sector were for a CDU/Liberal coalition to get reforms going. Now its is really unclear as to what coalition could be formed, and the major uncertainty will weigh on the capital market and could shave 1-2 tenths of a percentage point off next year’s GDP growth, mainly through weaker investment spending.”
German business leaders are hoping that the SDP and CDU will resolve their deadlock soon to minimise any ill effects on the economy.
“In view of the great challenges which we are facing, Germany needs a clear, untrammelled majority in the Bundestag,” said Mr Hans-Joachim Koerber, chief executive of retailer Metro. “The deregulation of the labour markets and the fundamental reform of the social insurance systems, too, must be tackled seriously and without delay.”
A BMW executive said: “This is exactly what the country didn’t need – a long period of uncertainty and negotiations. We will all be losers.”
Sharing the concerns of uncertainty, Mr Willi Berchtold, president of the German telecoms industry association Bitkom, said: “The parties must quickly move toward a coalition.”