Germany’s unusually unpredictable election

This is an audio transcript of the FT News Briefing podcast episode: Germany’s unusually unpredictable election

Marc Filippino
Good morning from the Financial Times. Today is Friday, September 24th, and this is your FT News Briefing.

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US Treasury yields moved higher on Thursday as traders reacted to the prospect of the Fed raising rates. Meanwhile, Turkey’s central bank slashed rates, thinking that it will bring down inflation. The new Aukus security pact between the US, UK and Australia has come in for more criticism, this time from Germany. Also in Germany, voters will cast ballots this weekend in a momentous nail-biter of an election. So we asked our Berlin correspondent who might win.

Erika Solomon
We just don’t know because there’s about 25 per cent of voters that say they haven’t made up their mind yet. This is pretty unusual for Germany.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Remember when the stock market dropped earlier this week? Seems like a lifetime ago. By Thursday, the S&P 500 index had erased those losses and in the bond market, prices fell and yields on the 30-year US Treasury were up nearly 2 per cent. The FT’s Kate Duguid says the market seems to be getting more in line with the Federal Reserve’s thinking about the state of the US economy.

Kate Duguid
Prices on longer-dated bonds, so like the 30-year bond that you mentioned, also the benchmark 10-year, those prices fall when economic expectations rise. So the Fed sort of signalling that it’s preparing to tighten monetary policy could be helping to persuade investors. We also saw news from two other central banks on Thursday. The Bank of England met and said that there was a strengthening case for tightening monetary policy. The Norwegian central bank also became the first western central bank to lift interest rates since the pandemic.

Marc Filippino
So, Kate, have investors just, you know, completely forgotten about the massive Chinese property company Evergrande, which is expected to default?

Kate Duguid
Not completely. Evergrande is widely expected to default on a key bond on Friday. We’re speaking on Thursday and it hasn’t happened yet. But it does seem as though investors are a little bit more convinced that Evergrande’s problems will not spread within China or more broadly in the world.

Marc Filippino
Kate Duguid covers the US capital markets for the FT.

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Turkey’s lira tumbled yesterday after a surprise rate cut. The central bank’s monetary policy committee slashed its base rate by a full percentage point, even though inflation is soaring. Our Istanbul correspondent, Ayla Jean Yackley, said the rate cut was aimed at encouraging faster economic growth, even though Turkey clocked a record 21 per cent expansion in the second quarter.

Ayla Jean Yackley
But that hasn’t translated into more jobs. And so the government is feeling pressure as its support among voters declines to pump up the economy even further. And doing that with credit is the way that it sees going forward. And the second reason is a bit more specific to Turkey. Turkey’s very influential president, Recep Tayyip Erdogan, describes himself as an enemy of interest rates. He doesn’t believe in the conventional economic theory that higher interest rates, slow inflation. He sees it as a cause for inflation. So he has said that by lowering interest rates, Turkey will be able to slow price rises, which are, as of August, at nearly 20 per cent.

Marc Filippino
That’s the FT’s Ayla Jean Yackley in Turkey.

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The US is still taking flak for the new Aukus security partnership with the UK and Australia. The pact infuriated China and France. Paris lost out on a big submarine deal with Canberra. Now Germany is speaking out. A top policy adviser to Angela Merkel, Christoph Heusgen, told the FT that the new pact is an insult. He added it’s led to a big loss of trust in the Biden administration. Heusgen described the announcement of the pact as irritating, saying he expected Biden to adopt a different style from his predecessor, President Donald Trump.

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German voters, meanwhile, head to the polls this weekend to decide on a new course for their country after 16 years of Angela Merkel at the helm. In the latest polls, the Social Democrats have overtaken Merkel’s party, the Christian Democrats, for the lead, while the Green Party is also a contender. But none of these parties appeal to many younger voters who are focused on climate and don’t see any party as achieving the necessary goals.

Erika Solomon
Even Germany’s Greens are not compatible in their climate platform, with the pathway to 1.5 degree of warming that Germany is committed to in the Paris accords.

Marc Filippino
That’s the FT’s Berlin correspondent, Erika Solomon. She told me about the issues that are on the minds of young voters in Germany.

Erika Solomon
Among more conservative young people, you know, you’ll see things like having sort of individual civil liberties being much more discussed. I would say what really unites any young German voter right now, though, is this kind of strong, desperate desire for change. And maybe another unifying factor would be digitalisation. So a lot of them, regardless of whether they’re on the right or the left, feel like Germany has just been lagging behind. Germany is considered a very steady country, but they’re not really good with big transformative shifts. And we’ve seen that under Angela Merkel’s governance for the last 16 years. As many have put it, she’s an excellent crisis manager; she’s done very well through all these different crises, but in terms of like pushing Germany to take on new directions, which a lot of the younger generation feels needs to happen, she’s been quite hesitant as have the party’s ruling with her.

Marc Filippino
So, Erika, moving on to the broader election, where do things stand now with the three leading parties?

Erika Solomon
Yeah, I mean, that’s sort of the really interesting and exciting question, if you follow Germany, which is not usually a line that you hear in terms of German elections. They’re usually pretty predictable, but this one isn’t at all. So we’ve had the top three parties are the Christian Democrats, the Social Democrats and the Greens. They’re the new on the Greens. Normally, there’s kind of a steady trend, whereas this time actually each party since April has taken the lead and there’s been 10-point swings in their leads. And so Germans are kind of shocked at themself, like, wow, this is really unpredictable. We don’t know what’s going on. And it’s actually making it very hard to know even what coalitions are possible. We have some guesses because it does seem pretty likely that the SPD will remain in the lead. But, you know, a lot of pollsters I’ve been talking to in the last few days have said, well, it’s actually possible that Angela Merkel’s Christian Democrats could squeeze past the finish line just a little bit ahead. We just don’t know because there’s about 25 per cent of voters that say they haven’t made up their mind yet.

Marc Filippino
Which is, as I understand it, pretty unusual for Germany. So what kind of coalition could we be looking at, Erica?

Erika Solomon
As far as coalitions, I think we’re pretty likely, it’s almost inevitable that we’re going to either have the Social Democrats or the Christian Democrats as the leading party in any coalition. The Greens also seem almost inevitably, that they’re on course to enter government. The question is whether Germany will have a three-party coalition government, which is actually unprecedented. So even though we don’t know which parties it will be, we know that there’s some pretty uncharted waters coming up ahead. So the Greens are really likely to be in there. And then the other one, which we haven’t talked about, are the Free Democrats. They are the pro-business party. And they also are seen as quite likely to make it into government, which probably means that they will end up running the finance ministry and that will mean some pretty orthodox conservative fiscal policy for Germany and for Europe.

Marc Filippino
That’s the FT’s Berlin correspondent, Erika Solomon. Thanks Erika.

Erika Solomon
Thank you.

Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

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The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We’ve had help this week from Peter Barber, Gavin Kallmann, Michael Bruning, Persis Love and Howie Shannon. Our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.