How many politicians does it take to change a government?
Talks between Angela Merkel’s CDU and the centre-left SPD will resume on forming a German grand coalition but any agreement is probably weeks away yet.
With the Greens having bowed out at least we now know it will be a joint administration of the big two parties or fresh elections. The former remains odds on.
The SPD is scarred by its experience of coalition in the last decade, when its support slumped, but it’s probably the lesser of two evils for the party since a new vote would be quite likely to increase Merkel’s support. She only just missed out on a rare overall majority first time around.
SPD leaders will be pushing for concrete concessions from Merkel on a minimum wage, something Germany does not have. Without that, it may be difficult for them to sell the idea of entering full-blown negotiations to a meeting of 200 senior SPD members scheduled for Sunday.
After the afternoon talks wind up, Merkel will meet European Council President Herman Van Rompuy for talks ahead of an EU summit later in the month.
Banking union and the impact of Germany’s protracted coalition talks on EU policymaking are likely to top their agenda. Germany continues to dig its heels in over who should provide the final backstop for the costs of winding up failing banks and the clock is ticking.
If the ECB’s health check of banks reveal problems next year and a banks’ shareholders, creditors and large depositors can’t fill the gap, national government help may be required and if that is insufficient, what then? An answer to that question is needed fairly urgently.
A solution is supposed to be signed off by an EU leaders summit in December but if that slips, the harder deadline that the European Parliament must vote through any deal before it faces elections in the Spring hoves into view. The risk is that disaffected European voters could elect the most eurosceptic parliament yet seen which may not be keen on further integration.
Germany’s leading economic institutes will issue their autumn report which is likely to outstrip still modest growth forecasts from the government and Bundesbank.
Spanish and French bond auctions are the highlights for the debt market. Neither country has any funding problems and now the sting has been taken out of the international backdrop with sanity finally prevailing in Washington though presumably we could be back on the brink early next year.
Stock markets climbed after Congress voted through a Senate-brokered deal although they had already perked up on Wednesday in anticipation of a breakthrough. It has to be said that markets have never priced in any sort of default, assuming a deal would be done, so upside may be limited.
Madrid will sell up to 2.5 billion euros of three-year and five-year bonds and is basically through its 2013 funding schedule. France will shift up to 8.5 billion euros of medium-term and inflation-linked paper. Despite showing barely any growth and facing questions over its willingness to liberalise its economy, Paris can still borrow for 10 years at less than 2.5 percent.
One consequence of the U.S. government shutdown has been the stalling of fledgling U.S.-EU free trade talks. Talks between Europe and Canada have gone on for much longer – a deal was supposed to be struck by the end of 2011 – without fruition yet.
But today, Canadian Prime Minister Stephen Harper will fly to Brussels to meet European Commission President Jose Manuel Barroso so presumably and end game approaches, otherwise why bother coming. Officials say a deal, which has stumbled over any number of issues from pharmaceuticals to financial services to beef and dairy, could generate around $28 billion in trade and new business each year.