Economics ... CHART OF THE WEEK ... CHART OF THE WEEK ... CHART OF THE WEEK ... CHART OF THE WEEK 22 November 2019 German politics: closer to the danger zone Opinion polls: combined left only a few points short of a potential majority 60% Greens SPD Left Party Majority threshold 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Support for Greens, SPD and Left Party in opinion polls, in %; two-poll averages; threshold needed for a majority of seats in the Bundestag varies with the support for fringe parties that do not make it into parliament. Source: ARD DeutschlandTrend, Berenberg • The German question: German politics will make headlines in the next few weeks, starting with a CDU convention today. However, the key issue is not for how long Angela Merkel will remain chancellor or whom her centre-right CDU/CSU may nominate as her would-be successor; instead, we need to watch the SPD and the Greens. Their next moves could decide whether German policies tilt significantly to the left after potential snap elections in 2020. • A Green chancellor after Merkel? We currently see a 70% probability that the coalition of the CDU/CSU with the centre-left SPD sticks together throughout 2020, allowing Merkel to remain in office. We put the risk that the SPD walks out of the coalition at 30%. This includes a 5% probability that Merkel manages to soldier on at the helm of a minority government and a 15% probability that her CDU/CSU, under a new leader, enlists the Greens as their new junior partner to pursue a fairly similar policy agenda. This leaves a tail risk of 10% that, after new elections, a coalition of the combined left led by a Green chancellor could govern Germany instead with a more leftist agenda. • New SPD leaders could reshuffle the deck: After the second round of a membership ballot from 19 to 29 November, the SPD will announce on 30 November whether the moderate finance minister Olaf Scholz jointly with Klara Geywitz or the left-wing duo of Saskia Esken/Norbert Walter-Borjans will lead the party in the future. If Scholz/Geywitz win, the SPD would almost certainly remain in coalition with the CDU/CSU under Merkel. That would dispel the political risk for the time being. If Esken/Walter-Borjans prevail instead, the risk that the SPD pulls out of the Berlin government would rise to 45%. In turn, the probability that snap elections could bring a coalition of the combined left to power next spring would go up to at least 15%. • The pivotal party: If the SPD leaves the coalition with the CDU/CSU, any new government would almost certainly have to include the Greens. Now polling at more than 20%, the Greens would likely insist on snap elections beforehand. After a new vote, all parties would still shun the right-wing AfD (around 15% in polls) and neither the small liberal FDP (c8%) nor the CDU/CSU (c26%) would work with the Left Party (c9%). Short of a dramatic upset, new elections could thus result in one of two outcomes: 1) the Greens join the CDU/CSU as junior partner; or 2) they team up with the SPD and the Left Party instead. Including the Left Party no longer seems to be a taboo for them. Such a potential coalition of the combined left is only 1-2 points short of a majority in current polls (see chart). The option could be attractive for the Greens. As the senior partner, one of their two leaders, the more charismatic Robert Habeck or the more policy-focused Annalena Baerbock, could then be the next German chancellor. • What if? A green-red-red government would be hemmed in by the upper house of parliament. The CDU/CSU could still wield a veto against major shifts in tax and European policies in this chamber of state governments for the foreseeable future. But even without control of the Bundesrat, such a coalition of the left may still re-regulate parts of the German economy such as the labour and housing market significantly and impair trend growth as a result. Holger Schmieding Kallum Pickering Florian Hense Chief Economist Senior Economist European Economist +44 20 3207 7889 +44 20 3465 2672 +4420 3207 7859 [email protected] [email protected] [email protected] Economics Chart of the Week Disclaimer This document was compiled by the above mentioned authors of the economics department of Joh. Berenberg, Gossler & Co. 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KG Internet www.berenberg.com E-mail: [email protected] EQUITY RESEARCH GENERAL MID CAP MID CAP - DACH BUSINESS SERVICES, LEISURE & TRANSPORT ENERGY (cont'd) MATERIALS Carl-Oscar Bredengen +44 20 3753 3160 BUSINESS SERVICES UTILITIES CHEMICALS Marta Bruska +44 20 3753 3187 Tom Burlton +44 20 3207 7852 Andrew Fisher +44 20 3207 7937 Sebastian Bray +44 20 3753 3011 Charlotte Friedrichs +44 20 3753 3077 LEISURE Lawson Steele +44 20 3207 7887 Xian Deng +44 20 3753 3014 Gustav Froberg +44 20 3465 2655 Jack Cummings +44 20 3753 3161 Kai Lux +44 20 3753 3202 James Letten +44 20 3753 3176 Stuart Gordon +44 20 3207 7858 FINANCIALS Anthony Manning +44 20 3753 3092 Alexander O'Donoghue +44 20 3207 7804 Annabel Hay-Jahans +44 20 3465 2720 BANKS Rikin Patel +44 20 3753 3080 Gerhard Orgonas +44 20 3465 2635 TRANSPORT & LOGISTICS Adam Barrass +44 20 3207 7923 METALS & MINING Benjamin Pfannes-Varrow +44 20 3465 2620 Conor Dwyer +44 20 3753 3216 Frederick Brennan +44 20 3753 3171 Richard Hatch +44 20 3753 3070 Lasse Stueben +44 20 3753 3208 William Fitzalan Howard +44 20 3465 2640 Michael Christodoulou +44 20 3207 7920 Laurent Kimman +44 20 3465 2675 MID CAP - EU core Joel Spungin +44 20 3207 7867 Andrew Lowe +44 20 3465 2743 Michael Stoner +44 20 3465 2643 Beatrice Allen +44 20 3465 2662 Adrian Yanoshik +44 20 3753 3073 Eoin Mullany +44 20 3207 7854 Fraser Donlon +44 20 3465 2674 Peter Richardson +44 20 3465 2681 TMT Remi Grenu +44 20 3207 7806 CONSUMER DIVERSIFIED FINANCIALS TECHNOLOGY Christoph Greulich +44 20 3753 3119 BEVERAGES Panos Ellinas +44 20 3753 3149 Tammy Qiu +44 20 3465 2673 Andreas Markou +44 20 3753 3022 Javier Gonzalez Lastra +44 20 3465 2719 Chris Turner +44 20 3753 3019 Tej Sthankiya +44 20 3753 3099 Anna Patrice +44 20 3207 7863 FOOD MANUFACTURING AND HPC REAL ESTATE Lou Ann Yong +44 20 3753 3159 Trion Reid +44 20 3753 3113 Ebba Bjorklid +44 20 3753 3247 Kai Klose +44 20 3207 7888 MEDIA Jan Richard +44 20 3753 3029 Fulvio Cazzol +44 20 3207 7840 Jamie Bass +44 20 3753 3217 MID CAP - UK James Targett +44 20 3207 7873 HEALTHCARE Robert Berg +44 20 3465 2680 Calum Battersby +44 20 3753 3118 FOOD RETAIL Scott Bardo +44 20 3207 7869 Keisi Hysa +44 20 3207 7817 Joseph Bloomfield +44 20 3753 3248 Thomas Davies +44 20 3753 3104 Michael Healy +44 20 3753 3201 Laura Janssens +44 20 3465 2639 Robert Chantry +44 20 3207 7861 GENERAL RETAIL