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Politics – What the German Election Means for Switzerland and the Markets News

Thursday, September 7th, 2017 | Economy

Germany is by far the most important trade partner in Switzerland, accounting for 23 percent of foreign trade. In other words, in 2016 the Swiss economy delivered nearly 40 billion Swiss francs to goods to the northern neighbor, and was imported for 48.5 billion. The mutual direct investment billions rise year by year. Swiss companies employ 235,000 employees in Germany, 120,000 people work in Switzerland for businesses based in Germany.
Against this background, the German Bundestag elections are very important from a Swiss perspective. The elections influence the future German economic policy, decide on the development of the eurozone and the EU internal market, and they are also closely monitored by the monetary authorities.
Will German economic policy change?
According to the latest polls, the Union from the CDU and its Bavarian sister party CSU can not expect a majority. The union comes to 38 percent and the SPD to 23 percent. The AfD and the Linkspartei are each 9 percent, the FDP and the Greens each 8 percent. A continuation of the Union SPD coalition would probably be possible, but depending on the outcome, a CDU-FDP government or an alliance with the Greens, in a two or three coalition.
Thus the most likely future German government will continue to maintain the so-called social market system. This system comes from the post-Second World War era, which in turn means free entrepreneurship and free markets, but also a strong control of business and governmental care. For the Swiss subsidiaries, this means that they must adhere to strict regulations and an employment-friendly labor law, which has been the case for a long time. The signs stand for stability.
How important is Germany to Swiss economic and foreign policy?
In addition to the USA, China and France, Germany is one of the most important foreign policy countries for Switzerland. All in all, Swiss-German relations are considered to be good. Personal intertwining is also manifold. 80,000 Swiss live in Germany and 300,000 Germans in Switzerland. Another 150,000 people are Swiss citizens in Switzerland. 60,000 Germans work as a frontier worker in Switzerland.
Berlin is also important because the Swiss economy wants access to the EU's internal market. Germany is the most important and powerful EU and Euro country. However, Germany showed little understanding of Swiss concerns in the implementation of the mass immigration initiative. The mediation function of Germany is better when it comes to economic concerns and the free movement of goods. Switzerland and Germany are very similar.
But it is also clear that Switzerland's relations with the EU conflict between East and West Europe, the refugee question and the Brexit negotiations are not the first priority for Berlin.
What is the choice for the markets?
A victory of Angela Merkel with intact prospects to form a government for the EU-friendly parties SPD, FDP or Greens is likely to strengthen the European equities markets and also the euro. However, as the markets are likely to have such a scenario, many of them are already priced in the euro exchange rate. A further significant weakening of the franc is therefore not to be expected. In the medium and long term, however, the exchange rate depends on the interest rate policy of the European Central Bank (ECB), on which the German government has only indirect influence.
There is also much evidence that the future German government will continue to be involved in the communalisation of the sovereign debt of the 19 Euro- pean countries by Eurobonds. Even a joint "Euro Finance Minister", as this new French President Emmanuel Macron brought him back into the game this summer, is critical in Berlin. Angela Merkel himself frequently appears "open" to such proposals, but is also not concrete. A change in meaning would have to take place mainly in the CDU / CSU. What the next German government will surely support, however, are the planned economic reforms of Macron. This assuming that these stabilize the Eurozone.
Do you expect surprises?
Increased attention is given to the right-wing AfD. If the Euro- and Islamic-Critical Party were to achieve a two-digit result, this would create disquiet, also on the foreign exchange markets. This could lead to a strengthening of the Swiss franc, a weakening of the equity market and an increase in the yields on European government bonds. After last year's survey on the Brexit and the Trump elections, some observers believe that an AfD vote is clearly above 10 percent, especially if a major terrorist attack is still to be committed.
Another surprise would be that SPD, Greens and the party "Die Linke", which emerged from the former GDR state party SED, would reach a majority together. However, today's surveys must be clearly wrong. A left-leaning government would affect investment readiness, even for Swiss companies in Germany.
What dossiers actually concern the relationship between Switzerland and Germany?
In the context of the financial crisis in 2008/09, the tax burden affected the ratio. Famous is the statement of the then Finance Minister Peer Steinbr├╝ck (SPD), who threatened the cavalry of rhetoric to Switzerland to get unsecured money of German nationals on Swiss banks.
The automatic information exchange now regulates the tax situation of German bank customers. There are still conflicts about stolen data carriers with information about German bank customers in Switzerland. According to the Swiss view, these are illegal, according to the German attitude.
In addition, Switzerland and Germany are divided on the regulation of the northern approaches to Zurich Airport. For weeks, broken railroads in the south-western city of Rastatt have also been detrimental to the relationship between the traffic of people and goods to and from Basel.

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