Election hopes spark German stocks
By Steve Goldstein, MarketWatch
Last Update: 5:35 AM ET May 23, 2005
LONDON (MarketWatch) -- Investors are apparently as eager as voters in North Rhine-Westphalia to see the end of German Chancellor Gerhard Schroeder's reign.
The benchmark German DAX 30 index rose 0.9%, compared to more modest moves elsewhere in Europe, after Schroeder called for an early election following a resounding defeat in a regional election on Sunday. See Europe markets.
The Social Democratic-Green alliance scored only 43.3% of the vote in North Rhine-Westphalia, Germany's most populous state, compared to a 51% tally for the Christian Democratic Union, marking the first time in 39 years that a new government will be in place in the state.
Prior to Schroeder's announcement, an election was widely seen occurring in Sept. 2006.
Analysts had seen gridlock on reforms in the run-up to an election.
"The one thing I'm hearing a lot of this morning is, 'It cannot get much worse. The sooner the change, the better,'" said Thomas Brandt, an analyst at Close Brothers Seydler in Frankfurt.
In order to get an early election, Schroeder must get a no-confidence vote in the lower house, where his party has a majority, and then get Germany's president to dissolve parliament.
If early elections are held in Germany, a conservative government led by the Christian Democrats would likely return to Berlin. Angela Merkel is likely to lead the party.
"Such a change in government would be good news for Germany's economic growth prospects and for further structural reforms," Morgan Stanley told clients.
German unemployment has reached highs not seen since World War II, with more than 5 million people out of work.
That said, the differences between the parties aren't that stark, said Christian Kahler, an analyst at DZ Bank.
"We think it's good for the stock market, but only for the next few trading days," he said.
German utilities E.ON Ag (EON: news, chart, profile) and RWE Ag (DE:703712: news, chart, profile) were early election-play winners, gaining over 2% each on expectations that a Christian Democrat-led government wouldn't subsidize alternative energy to the same degree as a government that included the Green Party.
Automakers might also get a boost as diesel filters and ecological taxes are less likely to be a priority in a conservative government, Kahler said.
Steve Goldstein is a reporter for MarketWatch in London.
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