The Strategist

German business criticizes politicians for failed negotiations

11/23/2017 - 04:59

Markets are calm, but entrepreneurs and economic experts are very unhappy with the political elite of Germany because of the failure of negotiations on the formation of a new government.

Ben via flickr
Ben via flickr
Berlin failed negotiations to form a new government coalition. Germany, Europe's largest economy, may face another unexpected round of election, and, apparently, an interim government will rule the country during many months... And what is Euro doing in this situation? Nothing special. However, immediately after the report on the failure of the talks on Monday night, November 20, the rate of the single European monetary unit to the dollar in Asian trading fell, but the drop was very insignificant: from a mark slightly below 1.18 to about 1.173. This is a loss of just over half a percent. Already in the morning, as soon as Europe woke up, the euro returned to its original level around 1.18.

The stock market displays a similar picture. Immediately after the opening of the Frankfurt Stock Exchange at 9 am, the most important DAX exchange index lost just over half of a percent, but already by lunchtime it recovered and, moreover, reached a half-percent point in the plus. Thus, it even interrupted the two-week correction that began after the take-off of the index to record levels in the first days of November. In short, the political crisis that erupted in Germany, practically did not affect indicators of the macroeconomic state of the country in any way.

Against this backdrop, the reaction of the leaders of various German business associations looks directly turbulent. This is understandable: lobbyists, defending the interests of their employers and reflecting their reaction, send unequivocal signals to politicians. The main signal: business circles in Germany are very unhappy with the fact that the country is dragging out a period of political uncertainty, because it is the business that does not like it most.

The rigid language of Hans-Peter Wollseifer, President of the Central Union of German Craftsmen (ZDH), who called the failure of the talks "fatal", is very indicative in this connection. Here is his main reproach to the Berlin negotiators: instead of relying on new ideas and approaches to "give impetus to modernization" to Germany, they rendered the country a disservice, prolonging the state of political uncertainty, which is a "poison for the economy."
The head of the Federal Association of German Chambers of Commerce and Industry (DIHK), Eric Schweitzer, and the head of the Federal Association of German Banks (Bankenverband) Hans-Walter Peters, also stated their great disappointment. At the same time, the banker complained that "valuable time is lost" for breakthroughs in such important directions for the future of the country as digitalization, education or the development of the European Union. And the president of the Federal Association for Wholesale and Foreign Trade of Germany (BGA) Holger Bingmann even exclaimed: "What a mess!".

Criticizing in general all the participants in the coalition negotiations for their inability to negotiate and the lost chance to form a capable government, representatives of German business at the same time abstain from accusations against specific parties, and especially from accusing separate political figures. In the eyes of German business circles in the current situation, there is no right or guilty, but a general failure of the political elite.

There were no any alarming forecasts on the immediate prospects of the German economy on Monday. It is now in an "extremely strong condition," recalled Commerzbank chief economist Jörg Krämer. According to him, the competitiveness of Germany is still very high, and the policy of super-cheap money, carried out by the European Central Bank (ECB), stimulates domestic demand. "So the economy’s dynamics is still high, and numerous problems - from bad roads to too slow internet - will not be felt for a while," Jörg Kremer said. He continues to firmly believe that next year Germany's GDP growth will be at least 2 percent, which is a very good index for such a highly developed economy.

As for the political forecasts, then the opinions of the representatives of the business circles differed. Some believe that it’s not over and that the participants in the failed negotiations should take weeks off for two time-outs, and then try to negotiate with the second call. Others proceed from the fact that it is a matter of re-election in early 2018.

But there is a danger that their results will be approximately the same as after the voting on September 24, and then the country will not be able to form the ruling coalition again. Therefore, the president of the Munich Institute of Economic Studies, ifo, Clemens Fuest proposed to try the minority government option, referring to the positive experience of the Scandinavian countries and Canada, for the first time in the history of Germany.

This option is fraught with chances and risks for the country's economic policy, the expert said. "The biggest risk is the growing uncertainty about the economic course and stability of the government, and the chances are that the role of parliament will be strengthened and certain political decisions will be discussed in more detail and openly," explained Clemens Fuest.

Head of the German Institute for Economic Research (DIW), Marcel Fratzscher, strongly disagrees with the opinion of his colleague. He expressed confidence that "Germany needs a workable government with concrete goals and a clear vision of the future," and called for a second attempt to form a government from the conservative bloc of the CDU/CSU, the liberals and the Greens, reminding that none of the four parties is guaranteed success in the case of re-elections.