German election: Merkel wins third term

Until now, Germany was ruled by a government that sought to improve the regulatory framework for private equity. Merkel's party and the liberal FDP were in favour of the market, even drawing up a 10-point plan to value the advantages of a flourishing private equity market.

Perhaps the biggest sign of how favourable the ruling coalition had been for private equity was that the industry was conspicuously absent from the pre-election debates. This puts it in stark contrast to the heated US election last year.

Ulrike Hinrichs, CEO at the Bundesverband Deutscher Kapitalbeteiligungsgesellschaften, says: "Chancellor Angela Merkel is coming out of the election stronger than ever. It was on the agenda of her party's coalition with the FDP to improve the regulatory framework for private equity in Germany. Now, we hope the new government under Merkel is going to equally recognise this task as important – no matter who is going to be her party's coalition partner."

What do Merkel's re-election and the FDP's withdrawal mean for PE in Germany?

Merkel's new partner will likely be either the socialist SPD or the green party Bündnis 90/Die Grünen.

"On the day after the election, private equity will not be the most important topic on the agenda. However, we are convinced that any possible new government will be interested in a competitive private equity market in Germany. Private capital from abroad as well as from within the country drives change, innovation and growth, which is healthy and needed. Now, it is important that questions about regulations, for example, tax transparency, will be answered quickly and in a fashion that does not lead to any disadvantages for Germany compared to other European countries," says Torsten Grede of Deutsche Beteiligungs AG.

There is still a chance of an entire left-wing coalition with the SPD, Die Grünen and Die Linke. However, the SPD currently seems rather reluctant to team up with either the green or the radical left.

The winner and losers
CDU/CSU reached 41.5% last night, seven percentage points more than the last 2009 elections but shy of an overall majority – like the party saw in the German state of Bavaria last week. It is the first time since 1994 that the CDU/CSU reached more than 40%.

Previous coalition partner FDP reached a shocking 4.8%, down from 14.6% in 2009's election and just short of the crucial 5% needed to get a seat in Parliament – the first time since the FDP's birth the party will not be represented.

The most surprising result was the votes gained by anti-eurozone party Alternative für Deutschland (AfD). The party, which was founded in the years of the financial crisis, reached an impressive 4.7%, just missing the entrance into parliament.

Voters want venture
Venture capital has become increasingly popular as many politicians realised how valuable the nation's image as a start-up country is. Olaf Jacobi, partner at German venture capital firm Target Partners, says: "The importance of venture for the economy is imminent when we look back at all the politicians across a range of political parties in Germany, who started to take a special interest in the start-up scene in the run-up to the election. You can look at the venture capital scene in Germany as an ecosystem that slowly reaches independence, with the start-up founder in its centre. We have many founders in Germany, who are willing to take risks, set up own companies, are well-connected and well-educated. The start-up scene is Germany is flourishing, why would anybody threaten this situation?"

A new coalition is now being debated, with a "great coalition" (the two largest parties) seen as the most likely outcome. At the moment, the SPD is still glancing enviously at Merkel's triumph, remaining rather inflexible when asked about a potential great coalition, such as the one from 2005 until 2009. During that time, SPD-chancellor candidate Peer Steinbrück became the government's finance minister, introducing measures for the deregulation of markets in Germany. This coalition was not a team-up of equal standing parties and the SPD had to submit to the yoke of Merkel and the CDU. With almost a 20% difference in votes, this scenario is likely to be repeated. This means, however, that private equity is likely to be safe from the SPD's aim to introduce tougher financial-market regulations and a ban for the relocation of funds to offshore regions.

Hinrichs says: "Looking back at the past governments in Germany, it is impossible to say whether the great or the red-green coalition introduced any worse or better laws or regulations for the private equity sector than the black-yellow government. Taxation laws such as the carried interest one were introduced by the red-green coalition. This government did not act against us and I doubt that even a great coalition of CDU/SPD would worsen our sector's situation."

Another possible coalition would be the team up with the Die Grünen. The party received a lot of criticism in the run-up to the election due to its drastic tax increase and financial market regulations plans, which are likely to be one of the reasons for Die Grünen's rising unpopularity.

The other reason likely to have cost the party a lot of votes was Die Grünen's aim to introduce a meat-free veggie day in Germany's canteens. The results are in: do not come between a German and their sausage.

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