Europe without Merkel? Investors think through another ‘surprise’

LONDON/BERLIN: A serious challenger to German Chancellor Angela Merkel is forcing global investor stop arse another potential electoral surprise – removal of a key political constant through years of euro zone turbulence but also an end to Europe’s austerity bias.

Martin Schulz’s appointment as the Social Democrats’ (SPD) candidate to run against Merkel has energised Germany’s September election race and those in his party daring to think they could unseat her.

He remains the underdog, but polls show him pulling closer by the day. One published on Thursday gave just a six point gap between Merkel’s alliance and the SPD. It said Schulz far outstripped her in one-on-one popularity.

That is an unnerving prospect for some investors now accustomed to Merkel’s generally steady handling of Europe’s rolling crises that has contributed to triple-digit gains from German stocks to Portuguese bonds.

Just a few weeks ago, Larry Fink, head of the world’s biggest asset manager Black Rock, praised “the moral leadership Chancellor Merkel and Germany have played in an increasingly discordant world,” adding that he hoped it would continue.

Schulz, a former European Parliament president, though, is looking to shake things up.

Having seen his party wither during its time as the junior partner in a ‘grand coalition’ with Merkel’s conservative alliance, he is vowing to fight for fairer tax rules, higher wages, better education and to overcome the ‘deep divisions’ that have fuelled populism.

Financial markets will see that as a nod to loosening the fiscal purse strings – no problem for a major economy with a large surplus and probably good for European stocks, although not so great for bonds if it fuels inflation.