Markets Don’t Open Champagne for Merkel

Debt return almost stayed the same. The euro slightly went up in line with the upward trend of the last few days after the Fed’s decision, and only Portuguese debt has shown tensions, anticipating the Government’s next imminent request for financial assistance to alleviate their economic problems.

Markets interpreted that the forceful victory obtained by the conservatives of Bavaria was a good thermometer of what could happen in the general elections: a resounding victory for Angela Merkel. And, for this reason, investors waited for the events to unfold.

The upcoming decisions to be taken by the German Government (and its Constitutional Court) will be of vital importance for the future of Europe: new rescue and/or aid to the European periphery, a banking union and, as Spanish Foreign Minister forecasts, Eurobonds.

Investors (and the rest of European citizens) also want to know whether Merkel will modify Germany’s policy to govern in coalition. The possible alliance with the SPD or the Greens gives some hope about a change in her policies that may be more prone to growth and less to the harsh austerity.

Merkel has quickly pointed out that she is not planning to change her economic policy, but some observers believe that with a reinforced Chancellor, fewer strings attached, the peripheral countries will be winning. At least the recent steps taken by the German leader point in that direction.

It’s in Germany’s best interest to have a strong recovery of the European economies, simply because 60% of the country’s exports go to the euro zone. However, and despite the latest manufacturing indicators (composite PMI) show remarkable increases in activity, Draghi has warned again that the European recovery is going to be very slow.

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