Sep 27, 2021 - World

Merkel's departure could bring influx of private investment

Christian Democratic Union (CDU) party chairman and candidate for the federal elections, Armin Laschet, in front of German Chancellor Angela Merkel on Sept. 26.
Christian Democratic Union party chairman and candidate for the federal elections, Armin Laschet, in front of German Chancellor Angela Merkel in Berlin on Sept. 26. Photo: Clemens Bilan/Pool/Getty Images

Angela Merkel's departure from German government may result in a massive influx of private investment.

Driving the news: The center-left Social Democratic Party, led by chancellor candidate Olaf Scholz, clinched a narrow victory in Germany's federal elections. It now will seek to form a coalition government by year-end with the Greens and the Free Democrats.

  • Everyone in that potential coalition agrees that Germany needs to boost public spending, which has been around net-zero for more than a decade. Particularly when it comes to areas like digitizing and greening the country's economy.

But they don't agree on how to get there.

  • Greens, who want huge new public investment, proposed a wealth tax and would remove Germany's version of the debt ceiling (which is enshrined in the country's constitution).
  • Free Democrats say tax hikes are a nonstarter and that the "debt brake" must be respected.

A likely compromise would be new incentives to attract outside investment, including from private equity firms that a Merkel lieutenant once famously derided as locusts. Particularly now that there is so much dry powder devoted to infrastructure, broadly defined.

  • Private equity investment in Germany hit records in 2019, before pulling back a bit last year because of the pandemic.
  • The upshot is that investors are ready for increased opportunity and have personnel in place.

The bottom line: No coalition government ever exists until it does, so there's still time for political maneuvering. But yesterday's results set the stage for Germany to formally hang a "welcome" sign for the onetime locusts.

Go deeper ... German election: Social Democrats narrowly beat Angela Merkel's bloc

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