Germany: Engine of Europe

Germany's Social Democrats are polling ahead of Merkel’s bloc for the first time in 15 years

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Key Points
  • Led by chancellor candidate Olaf Scholz, Germany's Social Democrats has seen the party's popularity improve in the wake of the country's worst natural disaster in decades.
  • "Investors should keep in mind that, first, Scholz is an outspoken moderate, if not conservative, within the center-left SPD," Carsten Nickel from Teneo, said in a note on Wednesday.
German Finance Minister and Chancellor Candidate of the Social Democratic Party (SPD) Olaf Scholz attends a meeting with members of the Foreign Journalists' Association in Berlin, Germany on June 09, 2021.
Emmanuele Contini | NurPhoto | Getty Images

LONDON — The upcoming election in Germany has now become even more unpredictable.

Voters are heading to the ballot box on Sept. 26 and the latest poll, carried out by Forsa, shows support for the Social Democratic Party, SPD, increased to 23% of the vote. Chancellor Angela Merkel's conservative alliance of the CDU/CSU, meanwhile, dipped to 22%. It is the first time in 15 years that the SPD has overtaken the CDU/CSU alliance in the polls.

The SPD has been the junior coalition party in the wider government led by Merkel, who is retiring from politics after 16 years in power. The SPD has been in coalition with the conservatives in the past, a notion that was typically seen as a negative among its supporters for being unable to push ahead with its agenda. However, this now appears on track to change.

Led by chancellor candidate Olaf Scholz, Germany's Social Democrats has seen the party's popularity improve in the wake of the country's worst natural disaster in decades. Torrential rainfall last month resulted in almost 200 deaths and hundreds more injured as disastrous flooding devastated property and plantations.

Another poll, conducted by INSA, had shown on Sunday the SPD neck-and-neck with the CDU/CSU.

The last time the SPD was the leading party in Germany's coalition government was back in 1998, when they joined forces with the Green party.

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"Some CDU/CSU leaders have reacted with harsh attacks on Scholz's alleged agenda of big spending and tax hikes," Carsten Nickel, deputy director of research at consultancy firm Teneo, said in a note on Wednesday.

"The substance of these claims is questionable, but they do suggest that Laschet's already nervous alliance is taking the threat very seriously," Nickel said.

Armin Laschet is the leading conservative candidate who hopes to replace Merkel in the chancellery.

Laschet's popularity has been questioned on several occasions, including when the CDU/CSU were choosing their main candidate for the upcoming election. At the time, some CDU members criticized the overall decision to headline the vote with Laschet rather than with Markus Soder, prime minister of the region of Bavaria.

German media reported Wednesday that 70% of CDU/CSU supporters want to replace Laschet with Soder.

What markets need to know

"Investors should keep in mind that, first, Scholz is an outspoken moderate, if not conservative, within the center-left SPD. The SPD is more willing than CDU/CSU to invest in areas such as the green transformation, digitalization, but also health and housing. However, a fundamental departure from the sound public finances agenda is not in the cards with Scholz," Nickel said.

The latter is one of the main themes of this election. Germany has taken a conservative approach to public finances, mainly since legislating in 2009 that governments must avoid a structural deficit. However, this changed slightly with the coronavirus pandemic as more money had to be channelled to support the country's businesses and citizens.

Going forward, one of the big debates will be whether Germany is keen to become more flexible toward public spending both within its borders and in the EU.

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