Angela Merkel has been re-elected German Chancellor for a fourth term. A strong domestic economy (record low unemployment) and high standards of living have understandably contributed to Germans’ satisfaction with the current state of affairs, and wanting more of the same.
On most issues of significance, Merkel and Schulz (secondary contender) did not have a view that was substantially divergent. Both parties strongly support the Euro/Eurozone, in contrast to the far-right AfD party which managed to take a few seats in the house, although having far less support compared to other far-right, populist-extremist parties in Europe. Their differences were more in details, rather than in policy, and it’s unlikely Germany will experience any major policy changes. The expectation is for a continuation of current policies, such as support for renewable power generation and the intent to eliminate nuclear power within the next five years.
With the German, French and Dutch elections now complete, the political risk from Eurosceptic parties - one of the main concerns of 2017 - is now largely alleviated. The continued stability of Merkel’s leadership will help provide financial markets with confidence, creating a favourable environment for German and EU fiscal management and the strength of the Euro, while easing political risk in the wider EU region.
The political strength of pro-Euro leaders, such as Macron and Merkel, now provides an opportunity to make inroads toward perhaps greater fiscal integration, should they choose to pursue the vision of a United States of Europe. These factors should lead to increasing demand for credit and improving conditions for the European banking sector.
Peter Wilmshurst is the portfolio manager of ASX listed Templeton Global Growth Fund (ASX: TGG) and an executive vice president in the Templeton Global Equity Group with research responsibility for banks in Europe, and Asian telecommunications...