As if the world is not already jaded by politics, Germany’s Federal Elections will take place on Sunday 24 September 2017, adding one more election to the long list that will affect global markets. Not as boisterous and protracted as the US presidential election and not as fractious as the UK snap General Election or Macron’s win in France, Germany’s decision is still a significant one.
The election so far has been strangely subdued.
The two main contenders, conservative incumbent Angela Merkel and social democrat Martin Schulz, held only one TV debate, in which many of the key issues went undiscussed. And with the vote still days away, German parties are preparing to collaborate after the election rather than emphasising their differences to sway the undecided.
An unobtrusive campaign, the results will still probably be a watershed moment in German history. No far-right party has managed to send delegates to the German Parliament since the defeat of the Nazis in 1945. That will almost certainly change Sunday: the far-right, anti-immigrant alternative for Germany party will likely make significant gains.
There are six major-party candidates for the chancellor’s office, but only two have a real chance to win. Chancellor Angela Merkel, the first female chancellor, has led the country for 12 years and is virtually assured of another victory. Merkel, who grew up in communist East Germany, is a former scientist with a doctorate in physical chemistry.
In contrast, Martin Schulz’s background is rather unusual in German politics, in which academic titles and educational achievements often decide careers. Schulz is a high school dropout from a working-class family who has openly discussed his battle with alcoholism. Before running against Merkel, he was the head of the European Parliament.
Whatever the result, global markets are reacting, waiting to adapt to potential currency changes that could be a result of the election.
Seen as one of the world’s most powerful leaders, a fourth consecutive office for Merkel would be the option that would provide the most stability for the people of Germany and the European Union (EU), especially in light of the Brexit negotiations currently underway. With Germany being at the forefront for shaping the EU’s policies, this decision will have a significant bearing on domestic and foreign policy in coming years.
How the structure of the coalition will affect the extent of Merkel’s power is another uncertainty that could be a worry for the UK in particular. As well as Brexit negotiations, the UK’s relationship with Germany over trade deals could be dramatically affected depending on the election result, which could cause yet another headache for UK Prime Minister, Theresa May.
Paul Langley, managing director of Godi Financial – formerly OSTCFX, says, “Germany has an incredibly influential position within the EU and so the importance of these elections shouldn’t be underestimated. We have seen the Euro rise against many of the major currencies recently, which suggests confidence in Merkel maintaining her position as Germany’s leader, as well as a positive vibe in the country.
“As with any election, market fluctuations and volatility are expected and so for those businesses with Euro exposure, planning ahead is crucial. Being caught short on FX dealings because of an unstable market can be avoided with an FX partner that can help you to hedge accordingly. It can also help businesses to take advantage of favourable movements and benefit from any strength in the Euro.
“However, we’ve witnessed plenty of political and economic uncertainty of late, what with Brexit, Trump coming into power and Theresa May’s disastrous UK election, so nothing is guaranteed. Establishing a robust strategy to manage currency fluctuations to counteract how markets react to such outcomes is therefore of utmost importance. Businesses can create certainty when markets are turbulent surrounding these elections, which can prevent any financial loss due to currency hits.”
Edward Hardy, economist at WorldFirst says, “More than twelve months on from the EU referendum, it’s clear that SMEs across the UK are still wary of volatility in currency markets and the disruption they can bring. Data shows that while SMEs were still happy to hedge their foreign currency exposure in Q2, many are hesitant to commit to longer-term hedging contracts. Whilst this may be rooted in uncertainty over cashflow, sales forecasts or other financial commitments, it could also be a sign of the first strains in the relationship between UK SMEs and global trade.
“While one quarter of data doesn’t make a trend, should this pattern continue, companies large and small will become more exposed to sharp fluctuations in currency markets. With Brexit talks still underway and September’s federal election in Germany, SMEs may find themselves unprotected just when they need protecting the most.”
