Editor's Note: Below is an excerpt from today's Early Look written by Hedgeye European Macro analyst Matthew Hedrick. Click here to learn more about the Early Look. In it, Hedrick explains the inherent risks related to upcoming German, Austrian and Italian elections.
German Elections – With the German general election set for September 24th, what 5 months ago in February looked like a dead-heat showdown between Chancellor Merkel and her Christian Democratic Union (CDU) and its sister party Christian Social Union (CSU) vs Martin Schulz of the Social Democrats (SPD), is now anything but.
Chancellor Merkel has materially pulled ahead, poised for her fourth term as Chancellor, with opinion polls showing a 13-16 point lead over her nearest competition, Schulz.
What changed over the past 5 months? Two main points are worth consideration:
- President Trump shifted foreign affairs to the top of the agenda, a strong suit for Merkel. Prior to this shift, Merkel’s support took a great hit due to her domestic handling of immigrants into Germany (essentially an open door policy) that left many cities and towns over-crowded with migrants with no shelter and direction on their status, and
- The SPD was dealt a crushing defeat by Merkel’s CDU in May in a state election in North Rhine Westphalia, a historic SPD stronghold. This defeat dented Schulz’s and the party’s credibility to lead.
Assuming Merkel’s popularity holds up, the big question remains who her coalition partners will be, as no German party stands to win an outright majority.
