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German Federal Election

Kater Ulrich

According to DekaBank’s Chief Economist and financial expert Ulrich Kater, Germany’s internal affairs will not in the least impact the events in the Eurozone. The European Union is slowly and inevitably heading toward constitutional changes which will reform the European financial system.  Kater believes that interest rates will stay around zero level in the near future and suggests that large financial institutions invest in American, Asian, and European equities.

Germans voted for stability and continuity in policy, which shows that they do not feel any uncertainties in their country. They strongly believe that they did not suffer from the debt crises unlike other countries simply because the government has shielded them from it. This general mood has led to increased consumption: they buy more and are willing to spend more on their wellness incentives. It is no wonder that Angela Merkel remained so popular. All of the smaller parties – especially extreme ones – fell out of the 5% threshold, while the larger ones gained large share votes. Although the SPD got fewer votes than the CDU/CSU, it performed better than four years ago. The fact that the FDP, the junior coalition partner to the Union, failed to win seats indicates that all of its main goals – such as liberalization of markets, flexibility on labor markets – have been realized in the past decades. Currently, there is no need” for them. However, the party is likely to become more influential in the near future again.

As the political program of the left-wing Greens is very unclear, it is highly unlikely that the CDU/CSU will tie up with them. Angela Merkel’s cabinet can gain broader support if the grand coalition with the SPD was formed. Both economists agree that there is no difference between the CDU/CSU and the SPD in terms of dealing with the problems of the Eurozone. The terms Right” and Left” became out-of-date in Germany as both of the parties have similar attitudes toward fundamental economic and mainly European issues, such as the creation of a fiscal union and debt settlement.

The formation of the coalition would neither affect the European politics. It is legally impossible for Germany to take on a bigger, leading role in the Eurozone and in Europe’s financial affairs. The creation of such a transfer union would violate constitutional conventions.

For the present, there is no government that would make constitutional changes that point to a fully-fledged political federation. However, in the long run, the EU will need a strong, centralized government to solve the imbalances. It is a very long and though process to form such a union – and the EU has just begun it,” Kater says.

Also the banking union is at a very early stage. There are only about 130 financial institutions under the supervision of the European Central Bank; the others are still controlled by national authorities. But financial markets believe in the powerful ECB, hence, it can buy a lot of time, which is necessary to carry out the radical financial reforms. If Europe does not take advantage of this opportunity, a new crisis can come in 5-10 years, which might be the final one.


heise michaelAccording to Michael Heise, the German economy is not as powerful as it is presented abroad. The biggest problem is that there are very few new and big investments in most of the segments of the economy, especially in the infrastructure,” he explains. Due to the moderate investments, there is no real industrial demand and the country primarily relies on its exports. Thus, the trading surplus is excessive. Germany is heavily investing abroad – but not domestically. This indicates that the government has not created the right conditions in taxation and employment to attract domestic – and foreign – investors, even though field like infrastructure, information technology and energetics need to be modernized. The wage policy is suffering as well; hence, the coalition is expected to introduce a minimal wage policy.

As for foreign investments, Germany performs better. The debt position of some of the countries in the Eurozone requires the ECB to keep the almost zero interest rate unchanged. However, this is dangerous for the large investors such as Germany because inflation can rear its head anytime, leading to huge losses. They should focus on real investments, which yield more than government bonds or bank deposits, such as equities with a yield of 3-4 percent. Ulrich Kater talks of the need to strongly and globally diversify investments.

There are good investment opportunities in the United States, which is recovering from the financial crisis more dynamically than any other country in the world. We believe that the high growth rates on the emerging markets will continue and there will not be an emerging market crisis. Finally, members of the European Union have also place in our portfolio strategies. Although they are not recovering as fast as the United States, the investment environment has significantly improved,” he says.

Central Europe is also an important part of the international diversification. In Poland, a strong economy is emerging with an attractively big market. Due to Hungary’s economic and political instability, it is not an overweight investment.

The strong and fast recovery in the U.S. will continue, leading to an increase in the interest rates and, thus, the strengthening of the dollar against the euro. The euro is expected to weaken from 1.33-1.35 to 1.20-1.25 against the U.S dollar within a year, from which the Eurozone might benefit.