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While Congress continues haggling over new spending and tax changes, politics globally are in a similar simmering lull—a welcome quiet for markets after a raucous 2020. But that doesn’t mean nothing is happening. Uncertainty is ticking higher in some places and lower in others, but all support the global gridlock we think should continue benefiting stocks worldwide this year. Let us have a look.
German Players Move Into Position
Germany’s federal election, which will anoint outgoing Chancellor Angela Merkel’s successor, is still five months away. But one piece of its uncertainty cleared this week, when her Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), selected CDU leader Armin Laschet as its candidate to replace Merkel. Until then, it wasn’t clear who would be the CDU/CSU ticket’s standard bearer, especially after the CDU’s drubbing in some key local elections and CSU leader Marcus Söder’s overall higher popularity. But after winning over three-quarters of party insiders’ support in a vote Monday, Laschet pulled out a win, enabling markets to start focusing on actual candidates and their popularity with voters.
Which is why Laschet’s selection is arguably only the second-biggest German political news item this week. Superseding it, in many outlets, is a new poll showing the Green party in first place, seven points ahead of the CDU/CSU as they rode high on the selection of their own candidate, party co-leader Annalena Baerbock. Even though a poll published exactly one day earlier showed the CDU/CSU five points ahead, echoing other recent polls, the outlier got the most attention as it highlighted the potential for a change in national leadership and what some pundits claim is a political sea change atop Europe’s largest economy.
We wouldn’t put much stock in any of this chatter, though. Whether the Greens or CDU/CSU come in first in the only poll that matters—the one on election day—Germany seems set for the same deep gridlock that has reigned for years. No party looks anywhere close to winning a majority, making a coalition of two or three (or more) parties the most likely outcome. Maybe the Greens govern with the CDU/CSU. Maybe they join with the Social Democratic Party, the CDU/CSU’s current coalition partner. Or maybe the extant coalition keeps going somehow. All these possibilities are a recipe for not much happening, keeping the risk of major change low.
Oh, Canada Has a Budget Battle
Canadian Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland unveiled their government’s new budget Tuesday, and—like most budgets these days—it is a grab bag of COVID relief and a smattering of new taxes. In other words, not anything that would rate as unique globally. But in an interesting twist, it seemed to take some inspiration from the leftist New Democratic Party (NDP), which currently polls third behind Trudeau’s Liberal Party and the center-right Conservatives. Trudeau’s budget included big subsidies for wages and childcare, both of which the NDP has championed.
You might think this would inspire the NDP to vote against the budget out of spite. That would probably guarantee the bill’s death, considering Conservative support is unlikely and Trudeau heads a minority government. But if the budget doesn’t pass, then the government probably collapses, which could trigger new elections. Those would allow Trudeau to capitalize on the Liberals’ improved polling while—in an amusing turn—painting the hard-left and center-right opposition as the parties of austerity for shooting down an expansive budget.
We won’t guess at how this plays out, as these things are unknowable. But it is worth keeping an eye on, as fresh elections could return a majority for Trudeau, changing the gridlock calculus a bit in the Great White North. In the meantime, as this saga shows, the chance of anything passing that really rocks the boat in the near term seems low.
One Roadblock Down for EU ‘Stimulus,’ 10 to Go
Last summer, the EU had a seemingly huge breakthrough: Member-states agreed to raise money collectively by issuing debt under the aegis of the European Commission, then spend the money across the bloc for bigtime COVID relief and, allegedly, “stimulus.” The world seemed high on the prospect of €1.8 trillion worth of public spending that wouldn’t jack up Italian and Spanish debt, and sentiment surged. At the time we urged caution, not least because if there is one thing the EU has proven over the past decade, it is that big deals like this are easy to agree on in principle and hard to actually get off the ground.
Since then, it has gone largely as we expected. The deal ran into numerous roadblocks, including an inevitable challenge in Germany’s constitutional court. This is the umpteenth time since the eurozone debt crisis that the EU or eurozone’s fiscal plans have been subject to German judicial veto power, so if it was on your Bingo card, congratulations. Happily for fans of the plan, that challenge partly resolved this morning, when the court dismissed an urgent bid to declare the legislation unconstitutional and lifted an injunction that prevented Germany from officially ratifying the EU plan. It isn’t the final word on the matter, as the court will still hear the case and eventually rule, but it at least lets the EU move forward for now.
Still, though, Germany was one of 10 member-states yet to ratify the plan prior to the ruling. Yes, in alphabetical order, national parliaments in Austria, Estonia, Finland, Hungary, Ireland, Lithuania, the Netherlands, Poland and Romania still must also approve the deal. We will spare you the deep dive into why nearly one-third of EU nations haven’t completed this process yet—the word politics should suffice. Most observers presume they will, though it wouldn’t shock us if some used the process to extract some concessions from the mothership. Like, say, Hungary and Poland, who are on the EU’s naughty list over some domestic policies that Brussels views as undemocratic. Or maybe politicking rears its head on another front.
However this plays out, we don’t think it is a huge deal either way. €1.8 trillion spread across 27 nations over three years is lunch money, not stimulus, and it mostly replaces spending that would have happened anyway, presuming national governments can even agree on how to spend it (cough, Italy, ahem, Spain). Mostly, we just see this as a shining example of Continental gridlock in action.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.