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- Markets are barely reacting to the sharp change in the German Federal election odds. Rightly so?
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Within just a few months, the CDU's comfortable lead of 21 percentage points over the SPD has completely melted away, and the spring euphoria for the Greens has also vanished - they lost 8 percentage points and now occupy a distant third place. This leads to completely new coalition constellations and a major shift in power between the parties. We have updated our baseline scenario accordingly and considered the implications for the capital markets. To put it in a nutshell. We are sticking to the basic findings of our original analysis. Given the proportional representation system, the strong role of the Bundesrat, the firm embedding in Europe and the broad consensus regarding the most important issues, we assume that concrete policies would not differ very much – almost regardless of which coalition it finally makes. This takes some of the edge off the otherwise unusual starting position. After all, in the federal election (September 26), for the first time in the history of the Federal Republic, the incumbent chancellor will not run for re-election. The question of which government will govern under which chancellor thereafter is completely open. Following the turnaround in the polls, the most likely governing coalition is no longer Black Green (CDU/CSU and Greens), but a traffic light coalition of SPD, Greens and FDP.
The polls
Overall, the chances of Olaf Scholz (SPD) becoming the ninth Chancellor of the Federal Republic have increased, while those for Armin Laschet (CDU) have decreased. As things stand, it is highly unlikely that Annalena Baerbock (Greens) will become Chancellor.
Which coalitions are possible?
One of the peculiarities of this election, however, is that it is not possible to draw any reliable conclusions about the coalition partners from the election results.
The high volatility of the polls makes numerous election results and thus a variety of highly diverse coalitions conceivable. If, for example, the Linke (Lefts) fails to clear the five-percent hurdle and the Greens gain a few percentage points more than currently expected, it would suffice for a red-green coalition. That would be the only two-party alliance that is currently realistic; a three-party coalition of SPD, Greens and FDP or Left Party is also possible, as is a three-party alliance of SPD, CDU and CSU. A coalition of four parties, namely CDU, CSU, Greens and FDP, is also conceivable.
Potential coalitions based on current polls
The most likely scenario, however, is that two blocs, namely SPD/Greens on the one side and CDU/CSU/FDP on the other, will face each other after the election. None will have a parliamentary majority and both blocs will then try to lure a party from the "opposing" bloc into their own. Our baseline scenario from today's perspective would be a traffic light of SPD/FDP/Greens, the second most likely would be a Jamaica coalition of CDU, Greens and FDP.