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The pandemic shakes markets and Germany goes greener

The pandemic rudely interrupted markets at the end of last week. The scientific community alerted markets to the outbreak of a new variant of the virus in South Africa, which they think will spread more quickly.

| 5 min read

It has substantial differences from the original virus, and they do not yet know if it can defeat vaccines or give people more serious versions of the disease. After it emerged that the world is facing a new ‘Omicron’ variant, governments immediately began shutting down air services, and some have already been strengthening their controls on social distancing and events in response to the continued fast spread of the Delta variant in the northern winter.

The World Health Organisation doubled up its recent warnings about the situation in Europe, forecasting a possible rise in total Covid-related deaths on the continent to over two million by next spring from the total over 1.5m currently. It reports increasing pressure on beds and intensive care systems in the hospitals of many European countries. The new variant may prove not to be any more lethal than the current ones and may also be blunted by the vaccines as the delta variant has been. Nonetheless, it is an added hazard for economies, and it has produced a short sharp selloff in share markets on both sides of the Atlantic. Assuming the vaccines do still work, there will not be a 2020 style lockdown recession and the controls on travel and events should start to ease next year. Share prices of the worst affected sectors reflect this scenario already. There will be more social distancing and controls particularly in Europe in the run up to Christmas.

Of more lasting significance is the coalition of Greens, FDP, and SDP in Germany signing a long document to inform how their government should operate. These proposals now need the endorsement of the three parties, with meetings planned for the FDP on 5th December and the SDP on 4th December. The Greens will consult all their members. They should have everything tied up by mid-December for the new government to take over and for Mrs Merkel to stand down. Mr Scholz, the Chancellor candidate for the new regime is already a central figure in the outgoing government, so he knows the inside state of play. There have been talks between Mrs Merkel and the coalition leadership over handling the interregnum.

It has not proven that straightforward thanks to the renewed intensity of the pandemic in Germany. Cases and deaths have hit new highs in a country which got through the first wave in 2020 much more easily than the other major countries in Europe. Mrs Merkel has let it be known she wanted a two-week lockdown before Christmas, but the incoming government did not. Instead, they have argued for a 3G strategy of allowing social contact if someone is vaccinated, has recently had the disease, or has recently tested negative for it. If they stick to this despite the new variant, the damage to businesses and events depending on social contact will be limited, though doubtless some people will be put off mingling anyway by the general worries over health. They may be driven to take more precautions.

The coalition has an agenda for the country that will be difficult to deliver. The fundamental compromise between the free market prudent FDP and the big spending Greens has been to propose a huge programme of green investment whilst at the same time restoring a debt control to cut the state debt as a proportion of GDP. The FDP have the post of Finance Minister as some reassurance about fiscal probity, whilst the Greens have the promise that all coal will be phased out from power generation by 2030 instead of 2038 and renewables will contribute 80% of the power by then compared to a bit over 40% today, implying a large financial outlay. The suggested compromise is to explore off-balance sheet financing methods and harness private capital.


  • 40% of current German power generation comes from renewables
  • 80% of power generation will be renewables by 2030, promises German Greens

The new government wishes to make it easier for migrants to become citizens, to legalise cannabis, to plunge into the politics of sexual identity, and to give the vote to 16-year-olds. They plan to raise the minimum wage to E12, to give health workers a €1bn bonus and to see 15 million electric cars on the road by 2030.

It is difficult to see how Germany, about to close it last nuclear power station, can get to the end of coal by 2030, and how it will contain energy prices to allow its industry to compete as it steps up investment in new generation. The car industry will remain under the cosh of enforced change of product, with the need to write off current plant and equipment for petrol and diesel cars and equip to build electric. Much rests on German manufacturers designing the new cars the world wishes to buy in good volumes and getting them out there as soon as possible.

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The pandemic shakes markets and Germany goes greener

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