Lim­ited downside risks from Ger­man elec­tions

Financial Mirror (Cyprus) - - FRONT PAGE -

The rat­ing agency DBRS con­sid­ers the out­come of the Ger­man elec­tions will not ma­te­ri­ally af­fect the credit pro­file of the is­suer nor lead to de­vi­a­tions from the cur­rent pol­icy mix and the strong com­mit­ment to Europe.

DBRS could change the trend on the Fed­eral Repub­lic of Ger­many’s rat­ings to Neg­a­tive from Sta­ble in the event of a de­te­ri­o­ra­tion in growth and fis­cal prospects se­vere enough to place the pub­lic debt-to-gross do­mes­tic prod­uct (GDP) ra­tio on a per­sis­tent up­ward tra­jec­tory. More­over, a ma­te­rial crys­talli­sa­tion of con­tin­gent li­a­bil­i­ties could ex­ert pres­sure on the rat­ings.

If re­cent opin­ion polls prove cor­rect, it looks in­creas­ingly likely that the Chris­tian Demo­cratic Union (CDU)/Chris­tian So­cial Union (CSU) will lead the next gov­ern­ment coali­tion, still fall­ing short of an ab­so­lute ma­jor­ity in par­lia­ment. The CDU/CSU could lead dif­fer­ent coali­tion line-ups. Al­though no ma­jor pol­icy changes are ex­pected, the next gov­ern­ment could use part of Ger­many’s fis­cal room to cut taxes and/or marginally in­crease spend­ing (e.g., so­cial or se­cu­rity). A less likely sce­nario, given the cur­rent polls, would be a So­cial Demo­cratic Party (SPD)-led coali­tion with left-lean­ing par­ties. While this could lead to a more ex­pan­sion­ary fis­cal pol­icy, DBRS does not ex­pect a sig­nif­i­cant de­vi­a­tion from the

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