German elections

German Inflation Could Bring An Election Shock In Form Of AFD And Left

Any general carry trade unwind amidst global asset market falls would make the German elite including the Christian Democratic Union, Social Democratic Party, and the Bundesbank vulnerable to intensified popular anger in the run-up to the elections. Without such an unwind there would be the alternative hazard of climbing inflation, also anathema to so many German voters, especially in the context of zero or negative nominal interest rates. The strongest vote against the elite is a vote for the anti-euro anti-immigration Alternative for Germany (AfD), or the Left Party. No doubt the mainstream parties will all try to trim their sails to the anti-ECB mood. But who would trust any such trimming given their long contrary record to date?

In considering the outcome of an anti-elite vote in Germany’s markets will probably take seriously the scenario of the Grand Coalition (CDU/Christian Social Union/SDP) losing its overall parliamentary majority; the SDP and AfD could well be in a dead heat for second place (15–20% each of the popular vote) and the Left in a 10–15% range. Then no workable government coalition might be possible, triggering early new elections.