The largest economy in Europe went to the polls on February 23rd. Whereas the results were widely predicted, the makeup of the government is far from certain. Since no party won a majority, let alone more than 30% of the vote, a coalition is needed to run Germany for the next four years. That entails endless squabbling over who controls which ministries and often leads to political paralysis, as it did for the previous government.
There is a sense of urgency. The far-right decisively won everything east of the former wall. That could usher in darker times if the centrist parties cannot come to terms. Moreover, the transatlantic partnership that has lasted for 80 years is no more and Europe needs to stand on its own two feet. If Germany cannot provide much-needed leadership, the fear is that it will leave the door for Russia to further expand its interests.
What does this mean for the stock market? The German Dax index is up 15% this year and was mostly unfazed by last week’s sell-off. Investors are clearly optimistic that any new government will be better than the last. That seems reasonable, as it can’t possibly get any worse than shutting down nuclear power plants in the face of the biggest energy crisis since the seventies. On the other hand, all bets are off if Liverpool doesn’t win the Carabao Cup.
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