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2017 is a mega election year for Europe. After the Netherlands, France and possibly Italy, Germany, too,
will go to the polls with the federal elections taking place on September 24. Until then, some
second-order polls in German Länder will be held in addition. Chancellor Merkel (CDU) is campaigning for
her fourth term with the former president of the European Parliament, Martin Schulz, as her contender
(SPD). Key issues will be Europe’s response to Trump, Brexit and its own centrifugal forces.
Domestically social justice and security are likely to dominate the debate.
At a meeting in Munich, the executive committees of the CDU and the CSU have largely demonstrated unanimity and the willingness to close the ranks behind Chancellor Merkel in the imminent election campaign after months of tension over Merkel’s refugee policy. The meeting is meant as the start signal of a joint campaign which aims at keeping Chancellor Merkel in office and preventing a “left republic”, the term the CSU uses to describe a coalition among the SPD, the Left and the Greens. As an anchor for a common campaign a joint election platform shall be launched. The platform is likely to focus on external and internal security, (income) tax reductions, support for families, prosperity and jobs and European policy. The Bavarian CSU, however, will stick to its demand for an upper limit on migration of 200,000 p.a. as a major element of its own complementary platform for Bavaria, weakening the signal of unanimity at a time when the SPD is surging in polls.
2016 GDP growth picked up further relative to the previous two years (1.9% vs. 1.7%). Growth was strongly tilted towards consumption thanks to several tailwinds (refugee crisis, low inflation, labour market strength), while slowing exports weighed on private equipment investment: With several tailwinds fading and a strong workday effect weighing, GDP growth looks set to slow to 1.1% in 2017. Recent sentiment indicators herald some upside risks for the current quarter. However, the 2.3 point drop in the expectations component of the January ifo index seems to corroborate our more cautious stance. In an unexpected turn, SPD party leader Gabriel announced that he would not run against Angela Merkel. Instead Martin Schulz, the former president of the European Parliament, will be the party’s frontrunner. Mr. Schulz’s unexpected nomination is likely to push the SPD’s campaign for the federal election on September 24 but unlikely to derail Merkel.
In an unexpected turn, Sigmar Gabriel the head of the SPD has decided not to run against Angela Merkel. Martin Schulz the former president of the European Parliament (EP) is now reported to run as the party’s candidate for chancellorship.