German stalemate
INDECISIVE VOTE SINKS STOCKS
German stocks and the euro fell and bonds rose yesterday after Germany’s election failed to produce a winner, dimming the prospect for lower taxes and labor costs promised by opposition leader Angela Merkel.
“Markets don’t like uncertainty, and there is a lot of uncertainty at this point,” said Wolfram Gerdes of Cominvest Asset Management in Frankfurt.
Ms. Merkel, leader of the Christian Democratic Union, campaigned to oust Chancellor Gerhard Schröder with proposals intended to spur growth in Europe’s largest economy, where unemployment is near a post-Second World War high. The CDU may now have to team up with Mr. Schröder’s Social Democratic Party instead of its favoured partner, forming a so- called grand coalition.
Germany’s benchmark DAX Index fell 1.2% to 4926.13. The euro touched a sevenlow of US$ 1.21.
Ms. Merkel’s Christian Democrats won 35.2% of the vote and Mr. Schröder’s Social Democrats 34.3%, provisional results showed. Both Mr. Schröder and Ms. Merkel claimed the right to form a government. Ms. Merkel lost a 15-percentagepoint lead in opinion polls in the last four weeks of the campaign.
Ms. Merkel’s policies won her support from business groups such as the BDI industry federation. She proposed suspending legal protection against unfair dismissal for companies with 20 workers or fewer and reducing income and corporate taxes. The result is “deeply disappointing,” said Juergen Thumann, the president of the BDI. “It will be more difficult to govern Germany.”
The CDU’s Ms. Merkel planned to scrap an agreement signed by Mr. Schröder’s government with utilities in 2000 to phase out nuclear power over the next 20 years. The utilities can generate power at their nuclear plants for a fifth of what it costs at hard-coal or natural gas-fired power stations. German utility companies were among the biggest decliners in Europe yesterday. E.ON declined 3.1% to 77.11 ($109.44) and RWE dropped 2.9% to 55.26.