Schäuble sacrificed as FDP eyes Finance Ministry
The architect of Eurozone austerity and the “scourge of Athens” Wolfgang Schauble had been German Finance Minister of eight years until yesterday. Angela Merkel has been forced to replace him as she struggles to stitch together a coalition following the poor showing by both her party and her main partner in the “Grand Coalition”.
Herr Schäuble will become the President of the Reichstag a powerful but mainly symbolic position.
His role as Finance Minister will most likely go to Christian Linder, Leader of the pro-business FDP. As their contribution to the “Jamaica Alliance” the Green Party has demanded the closure of Germany’s dirtiest twenty coal mines. Utility shares, particularly those of coal mining giant RWE, fell heavily as it became clear of just how tough the negotiations will be.
The Euro fell to its lowest level against the dollar for six weeks as concerns over Linder’s “Thatcherite” views of Europe emerged. It reached 1.1717 and the year-end target of 1.2500 is being quickly reviewed. Sterling has also recovered against the common currency and has now risen by 6% from its low of 0.9308 seen in August.
Macron eyes the main chance
During his election campaign, Emmanuel Macron, the French President was strong in his view that once elected he would work to reform the EU. This appealed to the French voters who abandoned the right-wing approach of Marine le Pen who advocated the departure from the Euro and tougher immigration policies since, at heart the French are intrinsically pro-Europe..
Macron, since his election, has slowly built his profile, picking on the “low hanging fruit” of Brexit to gain popularity in Brussels and Strasbourg.
Now, galvanized by domestic support, he has proposed far reaching changes to the EU moving it even closer to the Federalism which was the ultimate goal of Kohl and Mitterrand. Macron has some way to go until he can be considered as a visionary like Mitterrand but he has started to impress his views outside French borders.
Macron offered a sweeping vision for a renewal of Europe in a speech on Tuesday, calling for the EU to cooperate more closely on defence, immigration, tax and social policy, and for the single currency bloc to have its own budget. This is a common post-Brexit vision but Macron is the first to put forward firm proposals. Inadvertently, or possibly deliberately, he could have propelled the U.K. towards a “Hard Brexit” as he will have crystallized the fears of those U.K. voters who weren’t blinded by UKIP’s rabble rousing over free movement.
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Dollar benefitting from “Double Whammy”
Fiscal reform and hopes for tighter monetary policy have combined to provide the dollar with impetus and a change in trend. It has corrected a large part of its 6% fall versus Sterling and is now likely to test the support at 1.1606 versus the common currency that is becoming mired in the political issues facing Germany as well as benign inflation which is encouraging the ECB to remain on hold.
Janet Yellen’s speech on Tuesday where she removed the data dependency of rate hikes was supported by her FOMC colleague Lael Brainard who spoke yesterday but avoided any mention of her previous concerns over the path of inflation.
The “first cut” of the President’s Fiscal Reform Package was released yesterday. Trump proposed the biggest U.S. tax overhaul in three decades, offering to cut taxes for most Americans but prompting criticism that the plan favours the rich and companies and could add trillions of dollars to the deficit. These proposals face a tough time in congress as democrats are firmly against and Republicans are split with a number feeling that the plans don’t go far enough.
A rate hike in December is very much in the balance as the Fed seems to have embarked on an almost unseemly dash towards a regularization of monetary policy. Maybe Mrs Yellen feels her time as Fed Chair is ending as she is up for re-election in January and want to ensure her legacy!
