Germany’s chems urge quick coalition formation after inconclusive election result

Author: Jonathan Lopez

2021/09/27

MADRID (ICIS)--Germany’s parties in the “democratic centre” should form a coalition government and present within 100 days an industrial policy that could help the chemicals industry overcome the challenges it faces, trade group VCI said on Monday.

The speedy formation of a government the VCI is asking for may not be on the horizon, according to analysts, after nearly 80% of the 60m German voters called to the polls returned a hung parliament.

The largest party, the social democrats of the SPD, only obtained 26% of the votes, according to projections as of Monday morning cited by Reuters.

Not far-off, the conservatives of the CDU/CSU with 24.5%, its worst result in decades and the party closed the 16 years of Angela Merkel as Chancellor, or head of government.

But the kingmakers after the 2021 election may be the upcoming force in the left, the Greens (around 15% of the vote), and the liberals of the FDP with around 12%.

The far-right Alternative for Germany (AfD) was on track for 10.5%, down from 2017, and the far-left Die Linke around 5%.

QUICK ACTION
While climate change policies are likely to increase no matter what final coalition gets into office, taxes could be an issue where the left/right differences may be more pronounced.

The Greens could agree to more taxes, something indispensable for Die Linke if the coalition ended up a left SPD/Greens/Die Linke one.

But tax hikes are anathema for the pro-business FDP, who may agree to enter an SPD/Greens/FDP coalition giving away on climate change but succeeding in keep taxes as they are.

VCI’s plea for the formation of a quick government may not materialise and while her era has clearly come to an end, Merkel may need to stay around for many more months until a coalition if finally agreed upon.

“VCI is calling on the parties of the democratic centre to focus on exploratory talks in order to form a government capable of acting as quickly as possible. It must set a concrete course for Germany's industrial policy renewal in the first hundred days,” the trade group said.

It added the industry is facing challenges both at home and internationally, where other large chemicals producing countries bite market share for the export-intensive sector, and demand “immediate” action on electricity costs, research funding, bureaucracy reduction, approval procedures, and corporate taxes.

"The current problems are not waiting for a new government. That's why Germany needs political capacity to act as quickly as possible,” said VCI managing director Wolfgang Grosse Entrup.

“Only a swift departure will create the necessary tailwind to tackle challenges such as climate change. With, and not against industry, is the recipe for success here. We are ready and waiting."

‘SOCIAL MARKET ECONOMY’
Angela Merkel’s 16 years in office were marked by the eurozone’s sovereign debt crisis following the financial crisis, where austerity was the buzz word and southern, Mediterranean members were put to the test with bail-outs and consequences spending cuts programmes.

In 2015, she surprised the world and many at home by welcoming 1m Syrian refuges as the beleaguered country went through the worst of its civil war.

The country has manged to integrate the arrivals remarkably well and many of them are already in the job market.

The far right, who rode high on the back of the refugee crisis, lost votes on Sunday.

The initial success in managing the COVID-19 pandemic was Merkel’s last service to the country.

However, some analysts highlight how Germany remains wary of taking on the role it should on the global stage, considering the size and nature of its export-heavy economy.

“This new role, which many international observers have been demanding Germany to accept for a long time, comes at a point when Germany’s economic position is threatened by adverse demographics, structural disruptions resulting from digitalisation and, most importantly, the daunting quest to reach climate neutrality during the next two decades,” said David Folkerts-Landau, chief economist at Deutsche Bank, one of Germany’s main financial institutions.

Some of the challenges, he added, were the consequences of the US-Chinese tensions, Brexit, or the need to create a stronger EU, which would require a more proactive approach from the next government.

“Both historic achievements [rebuilding post-1945 and the 1990s reunification] were only possible because politicians were smart enough to let the social market economy unfold its benefits,” he said.

“The challenge for the new government will hence be a dual one: defining Germany’s new international role and striking the right balance between the market economy and a strong and guiding state. If we succeed, the renewed swan songs of some international observers might prove premature once again.”

The main stock market in Germany, Frankfurt’s DAX index, was up 0.91% as of 10:00 local time on Monday.

The Europe-wide STXE 600 index with the largest chemicals producers in the region, many of them German, was up around 0.30%.

Chemicals majors like BASF, Covestro or LANXESS were up more than 1%, compared to the prior close.

Front page picture: Sunrise in Berlin’s Brandenburg gate on Monday
Source: Michael Probst/AP/Shutterstock

Focus article by Jonathan Lopez