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Germany: On Your Deutsche Marks!


The recent defeat of Angela Merkel's Christian Democratic Union in the Hamburg regional elections could spell the beginning of the end for the Germany's participation in the Euro currency. Angela Merkel's popularity has been on the wane for some time now so this result could be yet another nail in her political coffin. The broader 'handout' mentality of the European Union does not sit well in the psyche of the industrious Germans who are increasingly questioning the wisdom of such actions and making their feelings felt at the ballot box. If this deterioration of support for the government is not arrested then a change of leadership is not inconceivable. The newly formed government may take Germany back to its once very popular Deutsche Mark.

The Economist summed up the situation very well indeed with this piece carried on the 24th February 2011.

IN an election on February 20th the citizens of Hamburg, a port city with the status of a state, inflicted an historic drubbing on the Christian Democratic Union (CDU), the party of Germany’s chancellor, Angela Merkel. Its share of the vote tumbled by nearly half, to 22%. The mayor, Christoph Ahlhaus, was turfed out after just six months in office. The Social Democratic Party (SPD) stunned even itself by winning nearly half the votes and a majority of the seats in the city’s legislature, the Bürgerschaft. Olaf Scholz, the incoming mayor, will govern without a coalition partner.

This was the first of seven state elections in 2011 that will test both the resilience of Mrs Merkel’s coalition with the Free Democratic Party (FDP) and the prospects of the main opposition parties: the SPD, the Greens and the ex-communist Left Party. Happily for Mrs Merkel, the Hamburg vote was a verdict on Mr Ahlhaus’s government rather than hers. The CDU-Green coalition, the first of its kind at state level, fell apart soon after the popular mayor, Ole von Beust, retired prematurely in August. Mr Ahlhaus, a conservative Heidelberger, never appealed to the liberal Hamburgers.

The results mean more for the SPD, which hopes to break through the 30% ceiling in national polls. Mr Scholz wooed Hamburg’s middle class and its entrepreneurs, naming an ex-head of the chamber of commerce as his shadow economy minister. The lesson, said Sigmar Gabriel, the SPD’s chairman, is that economic issues matter as much as social justice, the party’s usual emphasis.

Almost as happy was Guido Westerwelle, the beleaguered chairman of the FDP and Germany’s foreign minister. He and his party were so unpopular that he looked in danger of losing at least one of his jobs. Helped by a telegenic candidate, Katja Suding, and its opposition to an unpopular school reform, the FDP re-entered the Bürgerschaft after a seven-year absence. If this recovery is sustained in the next few elections, Mr Westerwelle will be out of danger.

Mrs Merkel cannot be indifferent to the Hamburg defeat. Last year her government lost its majority in the Bundesrat, the upper house of parliament, which represents the states. After Hamburg her influence will wane further. The government got a taste of what that means this week when it was forced into an expensive compromise with opposition parties on welfare, which will entail higher benefits and a minimum wage for several types of worker. The three elections in March—in Saxony-Anhalt, Rhineland-Palatinate and Baden-Württemberg—should turn out better for the CDU than Hamburg did. But the stakes, especially in Baden-Württemberg, which the CDU has run since 1953, are higher.

As we see it the results of such a move would weaken the Euro and even spell the end of it completely with considerable turmoil in the financial markets putting more upward pressure on silver and gold prices.

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sk chart 19 Feb 2011.JPG

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