Germany’s DAX index has dipped following the loss of a no-confidence vote in current Chancellor Olaf Scholz.
Last Friday, the DAX stood at 20,510.59 but has since fallen, at the time of writing, to 20,271.02. This represents a fall of 0.83% in the past five days. It was within this time that Scholz’s government lost its no-confidence vote meaning a federal election is due here in Germany within about six weeks.
Ironically, this dip comes after a strong period for the DAX. The index is up 21.74% in the last year, and 20.85% in the year to date, even as the German economy has begun to shudder and stall in recent months. Just this week the Bundesbank said that “an economy recovery is yet to materialise”.
At the release of the bank’s December Forecast for Germany, its president Joachim Nagel said: “The German economy is not only struggling with persistent economic headwinds, but also with structural problems. The labour market, too, is now responding noticeably to the protracted weakness of economic activity.”
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The Bundesbank went on to predict GDP growth was set to stagnate over the current six months, with the beginnings of a recovery on the horizon for next year. That growth, it said, will amount to only 0.2%, following a fall of the same amount in 2024.
It has been a time of considerable upheaval in German politics, with the unpopular Scholz on the backfoot after firing his finance minister over the coalition’s inability to present a budget. The finance minister in question, Christian Lindner, is the leader of the FDP. Once Lindner was fired, the FDP removed its politicians from the coalition, torpedoing the government.
As I wrote for European Pensions a few weeks ago: “The issue that Scholz’s cabinet could not agree on, and which has caused the collapse, centres around the budget. More or less a year ago today, the Federal Constitutional Court declared the government’s budget policy to be unconstitutional. The plan under that policy had been to take money raised to manage the Covid 19 pandemic and use it for the climate action budget. The court’s ruling left a €60bn hole in the budget. Since then, no one has been able to agree within the government on the path forward.”
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In turn, Scholz called for a vote of no confidence with the aim to lose it, setting up the federal elections in a few weeks. Up against Scholz will be Fredrich Merz, leader of the CDU, who Deutsche Welle said this week is likely to be the next Chancellor. Recent polling puts the CDU at 10 points ahead of Scholz’s party.
Deutsche Welle said even after the election, it could be weeks and months before a government is formed.
