Germans may issue bonds

WHILE a coalition government is rare in the UK, the Germans seldom have anything else.

The complex electoral system means that although elections were held late last month, with the centre-Left Social Democrats (SDP) claiming a narrow victory, it is still far from clear what the direction of travel will be.

Parties must now attempt to form a coalition – and it may not be the Social Democrats who are successful, as all parties are free to attempt to make coalition deals.

Due to the spread of votes this time, any coalition will contain three or more parties. Until it is decided, Angela Merkel remains as a caretaker leader. She won’t be able to make new laws, but she can keep the government running.

Darius McDermott, of Chelsea Financial Services, says that it is hard to see now what the impact of a new German leadership will be.

Instead, the markets will move when it becomes clear who ends up in the coalition and their likely impact on economic policy.

‘A lot will depend on whether the SDP can push through their initiatives,’ says McDermott.

‘For example, they think fiscal austerity is wrong in the post-Covid environment, so they could seek to increase spending.

‘That could mean more German bond issues and downward pressure on bond yields.’

Investors shouldn’t hold their breath for clarity.

In 2017, the post-election process took six months to sort out, while Germany’s European neighbours can take longer.

The Netherlands is yet to conclude negotiations after its elections in March, while in 2010 it took Belgium 541 days to form a government.