Germany: Turbulent political weekend – Deutsche Bank

Deutsche Bank analysts note that political fragmentation in Germany continued over the weekend.

Key Quotes

“The far-left and far-right now command over more than half of the seats in the German state parliament of Thuringia while prolonged leadership battles among the social democrats cast a shadow over the government coalition in Berlin.”

“In yesterday's state elections in Thuringia, the Left of PM Bodo Ramelow came out as the strongest party, followed by the far-right AfD. The CDU suffered heavy losses, dropping from rank one in 2014 to the third place while the SPD moved to single digits.”

“According to the results, no politically viable coalition reaches a majority, unless the CDU gets serious about dropping its previous categorical rejection of cooperating with the Left. In the end, a minority government led by the Left might turn out to be the most plausible option.”

“No clear result was achieved in the SPD members’ vote on the party’s future leadership presented on Saturday.”

“All in all, last weekend’s events have certainly increased the probability of an early GroKo demise, but we still think that the status quo forces are more likely to prevail; meaning that the GroKo treaty will be the ultimate arbiter in case of (more likely) conflicts.”

“In case of snap elections over the course of 2020 (which is not our baseline), recent polls indicate a majority for a conservative-green government. Such a coalition would imply an even stronger climate/environmental focus but would hardly embark on a fundamentally different policy course from the current coalition or trigger a more expansionary fiscal policy – unless we were to see a deep recession materialise.”