German election: the industry reaction

The Christian Democratic Union (CDU) once again received the largest share of the vote (33%) in Germany's general election on Sunday 24 September. However, nationalist party Alternative für Deutschland (AfD) gained a larger share of the vote than expected (12.6%).

This result signalled to many the electorate's dissatisfaction with the grand coalition that had previously governed Germany. The Social Democratic Party (SPD) has stated since the result that it will not enter into another such coalition.

When unquote" spoke to private equity players ahead of the election, a consensus emerged that the CDU would once again retain the largest vote share. However, it was clear that how other parties performed would determine the makeup of the coalition and a slight preference towards a "black and yellow" (SPD and FDP) coalition was expressed.

Willkommen to Jamaica
The yellow Free Democratic Party (FDP) did not gain enough votes to support the CDU in a repeat of the 2009 government, as the CDU also suffered big losses. Therefore, the most likely outcome is now a so-called Jamaica coalition, comprising the CDU (black), the FDP (yellow) and the Green party (green) to represent all the colours of the Jamaican flag.

Emanuel Strehle of law firm Hengeler Mueller is not convinced by this: "The Jamaica coalition is a tricky one. It may take a long time to negotiate an agreement because the FDP and the Greens have quite opposing views in certain areas. The SPD's initial reaction to no longer be available for the government may not be the last word."

However, should it be negotiated, Strehle is cautiously optimistic that the wider coalition's impact on private equity will be minimal: "I still believe the result will have little impact on the private investment business. The Green party could have an adverse impact in some areas, for example the auto industry, but it could also bring growth to other areas."

Hubertus Leonhardt, a partner at Tübingen-based lower-mid-cap buyout and growth investor SHS Gesellschaft für Beteiligungsmanagement, is still optimistic about the approaches of these parties. "All three of these parties are prepared to be open to innovation and digitalisation," he says, adding that the FDP in particular will insist on certain stipulations. "The FDP will be able to be very demanding that digitalisation is firmly on the agenda and will hope to get a ministry dedicated to this."

Michael Brandkamp, of early-stage investor High-Tech Gründerfonds (HTGF), agrees with this and emphasises that the Green party's policies are far more wide-ranging than many people expect: "I don't believe the Greens are only looking at cleantech, they believe in new technologies to support the change we need in our country." He does acknowledge the differences between the FDP and the Greens but is generally positive: "The Liberals want to rely more on the market whereas the Greens want to regulate. However, a Jamaica coalition will probably bring more advantages than disadvantages."

Strong opposition
Nonetheless, the fact that the AfD still has no prospect of forming a government does not take away from the fact that for the first time in post-war Germany a nationalist party will hold 94 seats in parliament, raising questions around the image of the country in the eyes of international investors. Brandkamp is clear in his condemnation of this: "We are very surprised by the result and definitely very ashamed. The shift from the larger to smaller parties was a big surprise for us." However, he is pleased that the SPD has stepped down. "The voters have gone against a grand coalition. It would have been terrible to have the AfD as the main opposition in parliament. If they play an important role in political discussion, that will have a bad impact on the German economy."

Leonhardt sums up the situation as generally positive economically, if negative politically: "In terms of who is representing Germany and taking the decisions, this result is fine. But it will take me personally a while to come to terms with the fact that so many people voted for the AfD. But on the other hand, 78% of people did not vote for AfD and the far-left Linke."

Strehle agrees with this take and underlines the value of continued certainty: "For the country and for the industry this is not such a bad result. The government will be able to work without any consent of the right-wing AfD. In fact, I think the AfD will struggle internally to find any kind of joint programme."

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