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EU green commitments will challenge German industry

German voters are more enthusiastic about a possible Green/CDU coalition than a continuation of the current coalition. But commitments on the environment will create challenges for its industry.

| 4 min read

The virus surge is subsiding on the continent, and vaccination rates are picking up. In France, 28% of the population have now had at least one dose. In Germany it is 33%, and in Italy 29%. New cases have more than halved from the April peaks.

Most commentators now expect good progress with vaccine rollout and further reductions in virus cases will allow reopening and a decent recovery from the third quarter. The second quarter will show some growth, but there will still be partial lockdowns and alarms about the virus pending fuller vaccination. The countries with the worst death rates and high levels of virus cases remain in the east of Europe, led by Hungary, Czechia, Poland and Balkan states.

Some are raising alarms about possible new variants of the virus that might resist the vaccine. The Indian mutation is said to spread more rapidly. Western vaccines are thought to be effective against it, however.

Others are pointing to surges in cases in Chile and The Seychelles where many people have been vaccinated. It seems in those cases that the virus is spreading worst amongst the minority that have not been vaccinated. Those who get the virus, despite vaccination, seem to have milder versions of the disease. Both countries have used a lot of the Chinese vaccine which is thought to be less effective after one dose, with improved protection a couple of weeks after the second, which may account for the recurrence of the virus.

Western advice backed by evidence is still that the western tested and approved vaccines do greatly reduce the likelihood of getting the disease, and also offer the prospects of a mild version for the small minority that might still pick up the infection.

European stock markets have responded well this year to the thought of recovery as summer approaches and the number of vaccinated people rises. Purchasing Managers Indices (PMIs) point to a strong industrial recovery, and a modest service one. The Euro manufacturing PMI in April stood at 66.2 and the composite at 53.8.

Central bank reluctance

The European Central Bank speaks about offering more stimulus but has been reluctant to commit much more to the markets. There is clearly no intention nor need to raise interest rates. The Euro economy has more in common with Japan than the UK or US, with projected falls in population, a balance of payments surplus and decent levels of savings.

The German economy is livelier than the peripheral economies, though its great success in vehicles faces two challenges. In the short term, a world scarcity of semiconductors is limiting output, whilst in the medium term the attacks on diesel and petrol cars require big write offs of existing plant and models and huge investment in the electric replacements. This means German pledges at the United Nations COP26 conference in Glasgow in November will have an important impact on its economy.

Meanwhile, German voters have put the Greens narrowly ahead of the CDU/CSU alliance in a number of recent polls. The early burst of enthusiasm for the Greens on the announcement of their Chancellor candidate has mellowed a little, but the Greens are keeping most of their recent advances whilst the CDU is finding it difficult to recoup many lost votes.

German voters are more enthusiastic about a possible Green/CDU coalition than they are about a continuation of the current CDU/SPD coalition. A Green/SPD coalition is the second-favourite choice. Annalena Baerbock, the Green leader, is well ahead in the polls for who people would like as the next Chancellor, on around 30% compared to Armin Laschet of the CDU, who sits below 20%.

The strength of the Green cause in Germany means the election will contain much about Germany’s need to phase out coal and transform its industries. Whichever parties wins they will need to meet pledges to make more-rapid progress to net zero, and to working closely with the EU programmes to do so.

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EU green commitments will challenge German industry

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