Blain’s Morning Porridge Feb 24th 2025: German Elections open up a whole new can of worms…
“The wealthy nations will not remain wealthy if the poor houses of humanity increase.”
The German elections highlight the dangers of coalition politics – swimming in a sea of treacle to agree policy choices as the likelihood of bad compromises rises. Even as Trump and Ukraine roil and destabilises the European Union, Germany is set for the distinct possibility nothing much changes. It is not strong and stable leadership at a time when it is desperately needed.
But first – a diversion into 6 Nations Rugby: When the first Calcutta Cup International Rugby match was played in Edinburgh between Scotland vs England in 1879 there were no points awarded for scoring a try. Running the ball across line for a touchdown merely gave you the right to kick at the goal which earned a single point, as did a drop goal. Now a try scores 5 points, and conversion of the try by kicking the ball between the posts gets a further 2.
On Saturday I watched from the top of Twickenham as Scotland scored three magnificent attacking rugby tries. The team were fast, flowing and exiting to watch, but each time they scored the mercurial (but usually accurate) Finn Russel failed to convert his kicks into the additional points. Didn’t matter, we thought. We expected more as the English line was punched through time and time again. But at the final whistle, England won by a single point after scoring a single try and playing a dull defensive game. Everyone agrees Scotland were by far the better, more exciting team….
There is a lesson in Scotland’s defeat: You can have some of the best players in the world, playing with fire, spirit, belief and enthusiasm, but if you lack one of the game’s critical skills, and can’t kick the ball over the crossbar.. you are likely to lose.
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It’s a lesson for markets and players of the great game of geopolitics. Critical skills are, well… critical. Today’s necessary critical skills in politics are evolving fast – and traditional parties are being left behind. Failing politicians around the world take note: The Rules Have Changed. You may have the most suitable policies and the best interests of the nation at heart, but if you lose the narrative to the distortions, misinformation and external interference the new SMERSH of diverse Right-Wing populist interests are currently selling… then the game is as good as lost…
Yesterday’s German election highlights populism remains ascendant. The electoral numbers show new, young voters are increasingly attracted to the populist parties, voting for the Left, the AfD or Greens. They have given up on the traditional parties. They vote according to how they hear and translate the political noise, and where they pick up their political affiliations and news. That’s the new battlefield for votes; social media and podcasts – it’s ground traditional parties just don’t know how to play.
The US election demonstrated how current politics is an increasingly dangerous game for incumbents – nations are broke monetarily and broken fiscally, and there are no second chances. Nor does it help that it’s no longer clear who is playing for who.
Musk and Vance represent the emerging new force in global politics – the interests of the American Tech Billionaire Oligarchy. After effectively funding Trump’s second term, the Tech Bros are determined to smash any kind of regulatory or competitive threats to monetising their products. Europe is seen as the primary source of that regulatory threat – hence their efforts to support the AfD with the aim of neutering Germany. (An example would be the flood of misinformation about Apple product insecurities caused by the UK having the temerity to ask for a right of access to user data last week. Knocking down European tech regulation is the objective, and it will happen brick-by-brick.)
The second threat comes from the now familiar Russian interference via bot farms, misinformation, fake news and useful idiots willing to parrot their talking points. It’s effective and works – just look at the number of useful idiot “patriots” across the West prepared to believe Trump’s nonsense that Ukraine started the war. Tell enough lies loudly and often enough and eventually they stick.
With Germany now stuck in a period of electoral negotiation, France effectively politically gridlocked, Italy run by Musk’s rumoured girlfriend, and the UK scrabbling to find money to pay for increased defence spending… Europe has never looked so disjointed and disconnected. What better time for Trump to carve up Ukraine – take half their resources, and give his mate Vlad-the-bad half the country so he can demand a Nobel prize as a blessed peace maker?
Perish the thought.
The German Election
This morning markets will take little comfort from the results of the US election. Despite some 16% of the German electorate giving their support to the neo-Nazi, pro-Russian AfD – it could have been worse. The hard-right won 20% of the overall vote on a high turnout. Pundits reckon the AfD could have polled even higher, but that many Germans were so incensed and appalled by JD Vance and Elon Musk’s electoral interference on behalf of the AfD, that they got over electoral apathy and their disappointment in the dismal quality of failing German politics to come out for their traditional parties.
It still leaves Germany looking fractured and riven with a coalition of the traditional right CDU (which won 28.5% of the vote), and the leftish SDP (with a mere 16.4%) scrabbling for a majority. Together the CDU and SDP will have a majority in the Bundestag – but not enough to drive change. The right-leaning FDB and left-wing BSW been been wiped out after failing to garner the 5% threshold required for Bundestag representation. However, the Greens and the Hard-Left Die Linke have taken nearly 20% of the seats.
The Hard Right and Hard Left have a blocking minority that could stymie the effectiveness of the new government – both are opposed to further support for Ukraine. It could prove very difficult for any new government to get the 66% vote required to change laws around Germany’s public debt-brake for additional defence and infrastructure spending.
It will also take weeks to put a new coalition together, under the CDU’s Friedrich Merz. Each party has to agree on policies and commit to them in writing. Merz’s comment that it will be “an absolute priority will be to strengthen Europe as quickly as possible so that we can achieve real independence from the USA step-by-step” might well backfire if Trump decides that gives him carte blanche to walk away from NATO and Europe.
In the meantime, Europe is likely to remain under assault externally from Washington, and internally as Alice Weidel of the AFD, Marine le-Pen leading the National Rally in France, and Meloni in Italy play whatever games to keep Europe from unity are required. Together with threats from Eastern Europe , how much can the Populists and the Greens distract and delay the necessary rearmament of Europe in the face of the Russian threat?
Bottom Line for Markets? Stay vigilant. Nothing changed.
Out of time and off to do the day job…
Bill Blain
Author Morning Porridge
One Comment
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From a reader:
“The real winner is Putin.
A CDU/SPD minority coalition of unnatural bedfellows, hobbled by a pro-Putin AfD and anti-military Linke, won’t secure the 2/3 majority required to break through the debt ceiling to fund defense spending. Our immediate thoughts should be with the Ukrainians, whose sacrifices will have been in vain. Let’s remember that they didn’t start anything. They now stand betrayed.
More broadly, European security is fast on its way to becoming an oxymoron – again.”
That has massive market implications – you can’t invest into instability and uncertainty.