(MENAFN– ecpulse) The biggest market-driver in Europe over the past week was the political campaign that ended Sunday with a stunning personal triumph of German Chancellor Angela Merkel, with voters overwhelmingly endorsing her center-right Christian Democrats party with the largest margin since German reunification in 1990.
The election, which was closely watched worldwide because of Germany’s paramount economic leadership within Europe, showed a ringing endorsement of Merkel’s stewardship over years of international financial crisis and a recession that barely touched German soil.
Merkel enjoys her sky-high popularity but allies in her two previous coalitions have ended up the worse in polls, after voters kicked her latest partner, the pro-business Free Democrats, out of Parliament altogether in Sunday’s election.
Merkel now needs an alliance with one of the two center-left rivals, with the most likely outcome is a “grand coalition” of Merkel’s Union bloc with the center-left Social Democrats of Peer Steinbrueck, which may face obstacles as the SPD will certainly play hard to get and would try to implement its central campaign promises.
During the campaign, Merkel rejected proposals from the two centre-left parties for tax increases on high earners and a mandatory national minimum wage, arguing that both would hurt the economy’s progress. Meanwhile the Social Democrats have criticized her approach to the Eurozone debt crisis.
A grand coalition might result in a somewhat greater emphasis on bolstering economic growth in Europe over the austerity that Germany has insisted on, in return for aiding economically weak countries such as Greece.
Coalition talks are likely to drag on for weeks as the future governing parties will need to build more confidence. Lengthy coalition talks might increase market volatility in the coming weeks, yet it is assured that a grand coalition will finally emerge.
The United Kingdom
Britain`s recovery has been stronger than thought in the second quarter, with data released last week showing the economy grew 0.7 percent in the three months to June and upgraded first-quarter growth from 0.3 percent to 0.4 percent.
Annual growth was slower than previously thought, with GDP expanding by just 1.3 percent, rather than the 1.5 percent previously calculated, due to downgrades in the final two quarters of 2012.
The improving picture will add to pressure on the Bank of England to explain its new policy of forward guidance, which has set a target for unemployment that would likely to be reached in 2016, but could arrive earlier should this year`s rise in GDP be maintained.
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