With Chancellor Angela Merkel due to leave office after Germany’s upcoming federal election on Sunday, the country’s priorities could change dramatically, particularly as power could soon be shared among newer (and more unpredictable) political forces.
It’s practically certain that the next government (like the current one) will be a coalition, but what’s far less certain is which parties will create or dominate a governing alliance.
What form the next coalition takes will undoubtedly have a big impact on Germany’s economy which is Europe’s largest and, arguably, its most important.
In 2019, almost a quarter of the EU’s gross domestic product (24.7%) was generated by Germany, according to Eurostat, and so how the country is governed — at a time of transition in terms of global trade and consumer trends — matters.
The election is still wide open with the latest voter poll on Monday showing that while the left-leaning Social Democratic Party remains in the lead and is seen with 25% of the vote, the ruling conservative alliance of the CDU-CSU (the Christian Democratic Union and Christian Social Union) has closed the gap, and currently stands to gain 22% of the vote. The Green Party, meanwhile, trails with 15% of the vote, according to the Insa poll for the Bild newspaper.
A new coalition will have to be formed after the vote and German economists say certain alliances could have “massive consequences” on the country’s economy.
Germany’s respected Ifo Institute and newspaper Frankfurter Allgemeine Zeitung surveyed 153 economists at German universities, asking them how different coalition formations could affect Germany’s economic growth, unemployment, public debt, and income inequality.
For each of these measures, respondents were asked under which coalition the highest and lowest levels could be expected at the end of the next legislative period.
The survey results, published Tuesday, found that 83% of the German economists polled believed that the lowest economic growth rate would be the product of a so-called “Red/Red/Green” coalition of the SPD, the Left Party (Die Linke) and the Greens.
Such a coalition of leftist parties “would represent a sea change in policy direction, which would translate into a different economic policy with higher taxes and more government transfers,” Ifo Researcher and Professor Niklas Potrafke noted of the survey results Tuesday, adding “that would also have massive consequences for the real economy.”
A total of 77% of the economists said they expected that, in addition to delivering the lowest economic growth, a “Red/Red/Green” coalition would lead to the highest unemployment rate and 86% believed they would have the highest national debt. However, 55% of the economists also believe that such a leftist alliance would achieve the greatest net reduction in income inequality.
The devil you know
Perhaps unsurprisingly, 44% of the economists believed that a coalition of the ruling CDU-CSU alliance and the pro-business FDP (a “Black/Yellow” coalition) would achieve the highest growth rate for Germany, although this grouping lacks a majority when it comes to current polls.
A “Black/Yellow” coalition would achieve the lowest unemployment rate, according to 43%, and the lowest public debt ratio, according to 73% of the economists.
This prosperity could come at a price to many with 70% of economists believing that such a coalition would lead to the highest net income inequality and 56% seeing it as leading to the highest carbon emissions of all the alliances.
In joint second place, 18% of the economists believed that the highest economic growth could come out of a coalition of the SPD, Greens, and FDP (widely called a “traffic light” coalition) and 18% felt the same about an alliance of the CDU-CSU, Greens, and FDP (known as a “Jamaica” coalition).
“Should either a so-called traffic light or a Jamaica coalition be formed, respondents believe the effects on growth, inequality, the public debt ratio, the unemployment rate, and carbon emissions would be more restrained,” Potrafke noted.
Polls wide open
Currently, there are a variety of possible coalition options, with most facing stumbling blocks to formation, meaning that there are likely to be protracted negotiations after the election due to policy differences between the parties in areas ranging from economics to climate targets.
“Coalition formation might take some time,” macro analysts from Teneo Intelligence said in a note Monday.
“Less than one week ahead of the 26 September federal election, the Social Democrats continue to lead in the polls. However, the Christian alliance appears to have recovered some ground. But even if the SPD wins, this does not necessarily mean that Finance Minister Olaf Scholz will become the next chancellor; CDU/CSU candidate Armin Laschet could still try to outmaneuver Scholz, for instance by trying to form an alternative government with the Greens and the center-right Liberals (the FDP).”
The CDU-CSU is used to being in power, but that could all change after next Sunday’s vote; both the SPD and Greens’ candidates for chancellor, Olaf Scholz and Annalena Baerbock, have suggested that neither of them has much appetite for a coalition with the CDU-CSU.
“I think that, after 16 years, many voters would like for the CDU to finally go into opposition again,” Scholz said during the last TV debate between the main contenders for the chancellery on Sunday.
$2T needed to reach 2050 target of net-zero economy: RBC – BNN
OTTAWA — A new report says the country will need roughly $2 trillion to put the economy on a path to net-zero emissions in 30 years, including government spending on things like skills training and backstops to prod the necessary investments.
The report from RBC Economics estimates governments, businesses and communities would have to spend at least $60 billion annually to cut emissions by 75 per cent of current levels and reach the 2050 target of net zero.
Money will be needed to build out the electricity system to handle the expected rise in electric vehicles, which will also need some subsidies to get them off assembly lines and onto Canadian roads, the report says.
There will also have to be investment in retrofitting old buildings faster than current federal plans predict, retraining 100,000 workers with new skills for fast-growing green sectors, and skills training programs to add 200,000 more into the labour force by 2030.
The numbers add up to a massive effort to meet the Trudeau Liberals’ short-term and long-term promises on climate change, but one the Royal Bank report estimates is possible if the government eyes a few key areas.
It’s not about ideology, it’s about math. And we’ve done the math and said, OK, here is how we can get those numbers down towards zero, and this is what it is going to cost,” said John Stackhouse, senior vice-president in the office of the CEO at Royal Bank.We think that it’s doable. So let’s focus in a very kind of business-minded way on the key drivers of emissions change.”
Parliament approved legislation last spring that required the country to eliminate as many greenhouse gas emissions as possible, and capture whatever is left to get to net zero by 2050.
The Liberals haven’t outlined the course to the long-term goal, and won’t before a United Nations climate change conference, known as COP26, looming at the end of the month in Glasgow, Scotland.
The government has increased its emissions-reduction targets for 2030 as required by the climate agreement.
Internal government documents suggest the Liberals are acutely aware of the cost to shift the country to net zero and have looked to push banks and other private sector investors to help with funding and financing.
Finance Minister Chrystia Freeland’s officials wrote in a September 2020 briefing note that the country’s financial sector, including banks, will need to play a major role” to create a net-zero economy. The briefing note created ahead of Freeland’s meeting with bank CEOs also noted how their institutions needed to do more tofoster the right conditions to support the acceleration of sustainable investment.”
Unlocking some of the needed spending will require federal politicians to create new platforms to channel private investment into green endeavors that may be akin to the Canada Infrastructure Bank.
The Liberals created the agency in 2017 to use federal dollars as a way to entice funding from private-sector investors, but its efforts and existence have become highly politicized with vows from the NDP and Conservatives to dismantle it if either are elected to govern.
Stackhouse said the country needs organizations similar to the infrastructure bank that can be semi-autonomous in terms of investment selections, but subject to government oversight.
Whatever gets created to spur investment has to survive successive governments through to 2050, and should be depoliticized for a better chance of success, he said.
“This is a 30-year project. There will be different governments during those 30 years. So let’s create entities that can channel both public investment and crowd-in private investment to focus on the key strategic drivers,” Stackhouse said.
But the report also warns of moving too fast, too soon. If there was a sudden and severe decline in oil and gas production, government revenues would fall by about $8 billion annually, which the report says could hamper, not help, the transition.
Minister of Finance to Release 2021 Ontario Economic Outlook and Fiscal Review on November 4 – Government of Ontario News
U.S. Federal Reserve survey finds economy facing supply chain, other drags – The Globe and Mail
The U.S. Federal Reserve reports that the economy faced a number of headwinds at the start of this month, ranging from supply chain disruptions and labour shortages to uncertainty about the Delta variant of COVID-19.
In its latest survey of business conditions around the U.S., the Fed said Wednesday that a majority of its 12 regions viewed consumer spending, the main driving force for the economy, as remaining positive despite the various speed bumps.
The report noted wide differences in performance, however. It noted that auto sales suffered because of constrained inventories resulting from problems obtaining critical semi-conductor components. Manufacturing, meanwhile, was growing either moderately or robustly depending on which Fed district was reporting.
“Outlook for near-term economic activity remained positive, overall, but some districts noted increased uncertainty and more cautious optimism than in previous months,” the Fed said in the report on business conditions around the country, known as the beige book.
The report, based on surveys of business contacts by the Fed’s 12 regional banks, will form the basis for discussion when central bank officials next meet on Nov. 2-3.
The Fed is widely expected to announce at that meeting that it will begin to reduce, or taper, its US$120-billion in monthly bond purchases starting either in November or December.
Those purchases have been designed to give the economy an extra boost by holding down long-term interest rates.
A move to trim the purchases is expected to be followed in the second half of next year with the first rate hikes. The Fed’s benchmark interest rate has been at an ultralow zero to 0.25 per cent since the COVID pandemic struck with force in the spring of 2020 but there are growing calls to begin removing its support in the face of rising price pressures this year.
The beige book found “significantly elevated” prices with widespread increases across industry sectors in large part because of supply chain bottlenecks.
Prices for steel, electronic components and shipping costs all “rose markedly” during the survey period, the report said.
Expectations for future price increases varied, the Fed report said, with some business contacts expecting prices to remain high or even increase further, while others expected prices to moderate over the next 12 months.
Fed board member Randall Quarles said in a speech Wednesday that he believes elevated inflation will start to “decline considerably next year from its currently very elevated rate.” That reflects his belief that the factors now disrupting the economy, such as supply bottlenecks, “appear likely to fade over time.”
The beige book report noted that while the demand for labour was high, job gains had been dampened by a low supply of workers, forcing many retail, hospitality and manufacturing companies to cut hours or production because they did not have enough employees.
“Firms reported high turnover as workers left for other jobs or retired,” the Fed report said. “Child-care issues and vaccine mandates were widely cited as contributing to the problem.”
In an effort to deal with the labour shortages, the Fed said many companies were offering more training to prospective workers and also boosting wages.
In addition to higher starting wages and increased pay to retain workers, companies reported offering signing and retention bonuses, flexible work schedules or increased vacation time as other incentives, the Fed survey found.
The Fed’s report was based on interviews conducted by the 12 regional banks on or before Oct. 8.
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