Global investment
Angela Merkel’s chancellorship is now coming to an end. It was a successful time for investors. Despite several crises of the century, they achieved adequate returns. But Ms. Merkel also leaves behind heavy mortgages, which now have to be solved by her successors.
Much is written about the political successes and failures of this chancellorship in the most diverse political fields, and that is a good thing. After all, Angela Merkel’s chancellorship is already the second longest in post-war German history, ahead of Adenauer. In view of the election result of last Sunday it should take some time before the formation of a government and Merkel’s chancellorship has a good chance at the end to go down in history as the longest-running German post-war chancellorship. I will allow myself a slightly different look back at Merkel’s chancellorship, from the capital market point of view, and shed light on the things that are in the foreground for me from this point of view.
Let’s start with a simple observation. Angela Merkel was elected German Chancellor on November 22, 2005. In the following almost 16 years, the yield on ten-year government bonds of over three percent at the start of the chancellorship fell into the unimaginable at the time: into the negative. Most recently at a value of -0.2 percent, but at the top even the value of -0.8 percent return was undercut. This means that Merkel’s chancellorship can be characterized as the period in which the phase of low interest rates solidified and even accelerated.
As measured by the blue chip indices, German stocks outperformed their euro zone competitors by around two percentage points with an annualized performance of over seven percent, but lagged far behind their US counterparts. The background for the clear underperformance compared to the USA was certainly also that, unlike the predecessors of Angela Merkel, no major supply policy stimulus for companies will be remembered. There was nothing like tax cuts and a turning back of state influence under Helmut Kohl and Otto Graf Lambsdorff in the 80s or a future-oriented Agenda 2010 by Gerhard Schröder and Wolfgang Clement at the beginning of this millennium. It was not due to the exchange rate to the dollar, which fluctuated strongly as usual, but is currently at about the same level as when Merkel took office.
Germany’s challenges seem too extensive to be entrusted to a new chancellor alone. Every triple constellation will have to solve a complicated task: to be able to indulge confidently.
This was a successful time for capital investors, in which, on average, they were able to achieve a performance in many European asset classes that was higher than the nominal growth rates or the inflation rates – with the exception of the money market. More about the value of money later.
Like no other chancellorship before her, the Merkels were confronted with economic crises of epoch-making proportions, those that arose mostly outside of Europe and Germany, but also the local economies and Brought capital markets into existentially threatening situations. One could also say: three crises of the century as a continuous challenge to a chancellorship. The Lehman crisis initially led us into the greatest recession after the Second World War. Only the economic downturn triggered by the global corona pandemic even exceeded this. The third crisis, smaller in the global context, was existential for Europe and the euro zone: the European debt crisis. Mario Draghi is certainly rightly called the savior of the euro in the first place, but he got the political and fiscal flank protection from the large countries of the euro area, above all from Angela Merkel and her finance minister at the time, Wolfgang Schäuble.
The holding together of the euro and the successful countermeasures against the historical crises are certainly the greatest success of Merkel’s chancellorship period from a capital market perspective.
In Angela Merkel’s constituency home there is only one world market leader: the boat manufacturer Hanse Yachts. What is the company’s boss’s assessment of the years in government?
But with regard to the capital markets, too, there is not only light, but also shadow. The fact that the euro gained seven new members during Merkel’s tenure can certainly be recorded as a success. However, the greatest setback also fell in the era of the Chancellor, not only for the European unification movement, but also for an internationally important, pan-European capital market. Angela Merkel shares responsibility for the UK’s exit from the EU, which was not only triggered by the fact that the large countries were inflexible to Great Britain’s demands for more room to maneuver.
Less market and erosion of the euro
Besides Great Britain Germany was valid as the second of the large EU countries that always propagated the market economy principles more strongly and, driven by the ideas of the Freiburg School, the cornerstone of independent entrepreneurship. Especially those who, like me, received their economics training from the ideas of the teaching of the 80s, rub their eyes in amazement at how we could now simply repeat what had turned out to be economically wrong in the 70s. The fiscal expansion to combat the crisis far exceeded that of the 1970s. The idea that more state is always the more successful solution was, in my opinion, refuted in the 1970s.
In my opinion, the erosion of the function of money as a store of value is even worse. Safe money market bonds could only offset about half of the inflation. The problematic consequences that this has on relative prices have often been discussed in detail. The resignation of three German
ECB members of the Board of Directors At the end of their term of office, with two of them barely veiled because of their concerns about the central banks’ purchase programs, the lack of support for the monetary policy school, which served as a guideline for the Bundesbank, also shows.
I confess that, from my point of view, you have to have a legal rather than an economic education in order not to use the term monetary state financing. Things are not getting any better because this is now a recipe for almost all central banks around the world. Thus, in Merkel’s chancellorship, the Bundesbank’s monetary policy armament was banished to the third row without any objection from Berlin.
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Ms. Merkel’s successor in the Chancellery is facing difficult challenges. The phase of low interest rates is likely to be replaced by a phase of lower yields, the hunt for yield thirsts for entrepreneurial ideas, the question of the mutualisation of debts remains an essential one for the capital markets in the European Union. In sum, one can say: As well as we were steered through the crises, so much were structural problems created for the future and left as a mortgage to the next government.
More on the subject: In Angela Merkel’s constituency home there is only one world market leader: the boat manufacturer Hanse Yachts . What record of the government years does the head of the company draw?
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