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What the German CDU Vote Means for Forex

Contributed by Orbex Forex Ltd
December 21, 2018

On December 7-8 the leading German center-right party, the Christian Democrat Union (CDU) will hold its annual conference, which is especially important for the Contributed by forex markets this time because they are expected to elect a new party leader.

This comes after German Chancellor Angela Merkel announced that she will not seek re-election as party leader following dismal electoral votes in Bavaria and Hesse. Merkel will continue in the Chancellorship until the next election, but her party will select a new leader, who would replace Merkel as their candidate for Chancellor in a subsequent government.

That last point opens up another factor in the elections: that the new party leader could try to oust Merkel and bring about snap elections before 2021 when they are next scheduled, in order to become Chancellor, bringing an end to the Grand Coalition (the union of the CDU and center-left SPD).

None of the partners are happy in the Coalition, as it is thought to affect the electability of both parties – bleeding voters to more right and left-wing parties that have seen their electoral results boosted in the latest elections.

The process

1,001 delegates are to meet at the two-day conference, representing the party members of different states. They are free to choose for whom to vote, with several rounds of voting expected on Saturday, since there is no clear front-runner.

A recent survey reported in Bild of the delegates shows that well over two-thirds have not made up their mind yet on who to support, meaning that there is quite a lot of uncertainty surrounding who eventually will be the winner.

Broadly speaking however, the question before the delegates is whether to vote for a continuation of Merkel's policy and style or to support a new approach, seen mostly as turning to the right.

The candidates

There are officially 12 candidates, but only 3 are seen as viable:

Annegret Kramp-Karrenbauer (known as AKK), is seen as the continuation of Merkel, having been hand-picked by the current Chancellor. Currently General Secretary of the party.

Friedrich Merz is seen as the main opposition to the Merkel faction. He left politics over a decade ago, being pushed out by Merkel, and has the appeal of an outsider with strong financial acumen, working in banking.

Jens Spahn, current Health Minister, and youngest candidate of the bunch had been seen as a potential successor to Merkel. He's spoken out against unpopular Merkel policies while remaining in her Cabinet and might be seen either as a compromise candidate, or a kingmaker, depending on how the voting goes.

The markets

Given the uncertainty around the potential results of the election, it's understandable that markets will be wary going into the weekend.

If AKK wins the election, the consensus is that we'll see a continuation of the political situation in Germany, with some minor modification. This should ally uncertainty concerns going forward, as it would likely mean that Merkel would serve out her term, and Germany's attitude towards the EU would remain the same.

If the delegates were to opt for Merz, and to a slightly lesser extent, Spain, it would be a move away from Merkel's policies and the markets could start pricing in the potential for snap elections.

While Merz's financial connections and emphasis on economic growth are likely to be seen as positive for Germany's economy, in the short term the uncertainty of a potential challenge to Merkel, snap elections, and further coalition wrangling might give markets some pause.


Tags: Germany | currency



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