Right after the general election in September 2017, we talked about possible turbulences on the market, which could be caused by the problems that might arise in terms of forming a new government in Germany. I suppose that did not work. It doesn´t seem to matter to the Dax or the institutional investor how large the chaos is which is surrounding the government-building process!
After all, you also know abroad (share of foreign investors in the DAX is very high): No one comes past Angela Merkel (in Germany they call her “Mother”). No matter what constellation, somehow Angela Merkel will continue to be at the very front of the government in the future. And yet it comes to new elections, and Merkel´s party CDU/CSU again loses a few voting shares – Angela Merkel still governs anyway somehow. So you can interpret her statements of recent weeks clearly. She wants to continue to govern, no matter how, no matter with with coalition partners (exempt the AfD).
No matter how few votes she has. As long as the other parties can´t rule over her, she continues. Well, Merkel must make some concessions to the Social democrats, but on the big picture, her politics is to be continued. And the detail questions around it? The chaos, the uncertainty? Why is nobody shocked? Why is the stock market not confused? After all, Donald Trump moves the stock quotes almost with every single tweet. But why the Dax don´t cares that in Berlin the new national conservative “AfD” has “stolen” a lot of voting shares from the “old” parties, so that the old balance is broken?
The German economy
Perhaps professional investors look at this chaos so relaxed because, unlike in the US, Germany’s economy is really solid in some very important sectors. In the US, for example, one record is chasing the next when it comes to the level of public debt. Now US have arrived at $ 20.5 trillion, and it’s set to rise to $ 21, 22, 23 trillion with Trump’s massive tax cuts. In Germany, on the other hand, recent official data shows that total government debt has fallen 2.9% in the last 12 months. Thanks to very high employment and zero interest rates on government debt, they will likely continue to decline relatively easily over the next few years. Also, the spending discipline of a certain Wolfgang S. (Finance Minister for a long time) and the anchored debt brake has ensured that the public budgets in Germany are once well prepared for some time, no matter what the government will look like, or who will be the new Minister of Finance!
Real estate loans and credit cards
In the US it´s common to buy houses, like Cars for european Consumers. Of course, completely on debt. Saving a capital base for years, ohhh god, that sounds boring for Americans. In Germany the hurdles are high. If you want to build a house, you usually have to show your own equity as a partial start amount – the housing loan is an addition to your own equity.
The situation is similar with credit cards. Every American has dozens of credit cards, for refueling, for shopping, for everything. So you can move your debt from one card to the other card, move your debt in the future, until it´s no longer possible (crash). In Germany, many people do not have a credit card. Debt on a grand scale is just a marginal phenomenon here. Although there are many over-indebted people, the level is not the same like in the US.
And then there is the sector “foreign trade”. The US as a national economy loses a $ 500 billion every year, because it imports more than it exports. US Government, Companies and consumers must bring this money into the Country via loans from abroad. As a result, the whole structure is shaky, which will somehow and eventually lead to collapse. It happened in 2008 and it will happen again in the future, albeit perhaps in a different way like the housing crash. Germany doesn´t suck in loans, but is busy producing foreign trade surpluses. As a result, net more money comes into the country, as that money drains. This money is supporting Goverment and Citizens. This is stabilizing the economy as a whole.
Due to the aforementioned factors, the German economy is very much independent of the current quarrels and ambiguities in Berlin. Whether this or that party, this or that Minister – something reasonable will already get around here (in the interests of investors), and the basis behind it (the economy) is indeed stable anyway … so, who needs to look on the details of founding a new government – the economy is running perfect… and in the US, a president needs stimulus measures to push the economy!
Angela Merkel on election day in September 2017. Photo: Sandro Halank / Wikipedia (CC BY-SA 3.0)