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Monday, 23 September, 2002, 19:31 GMT 20:31 UK
Schroeder victory hits German stocks
German trader
Traders worry about Germany's economic future
Germany's stock market has plummeted following the election victory of Chancellor Gerhard Schroeder's Red-Green coalition.


It would have been better if one party had received a clear electoral mandate

Andreas Scheuerle, economist, DekaBank
By the close, the Dax index of leading German shares had fallen 4.94% to 2,914, well below the security blanket of 3,000 and the worst finish for more than five years.

The decline was accelerated through the afternoon by a weak showing in the US, where the Dow Jones industrial average opened lower following poor economic and corporate news.

Other major European markets ended on their own punishing lows. London's FTSE 100 index, for one, closed down 3% at 3,739, a level last seen in August 1996.

Mr Schroeder's coalition's narrow victory depressed stock traders who have seen shares fall to their lowest levels in five years.

"This is an uncomfortable position for the stock market," said Johannes Reich, chief analyst at German private bank Bankhaus Metzler.

The result could also spell bad news for the euro.

"An inconclusive result is certainly the worst imaginable result for the euro," said Dorothea Huttanus, a foreign exchange analyst at DZ Bank.

Reform backlog

Some in the market had hoped that the Conservative-Liberal coalition would win and deliver dramatic reforms.

But most were more concerned with the margin of victory rather than the identity of the victor, fearing that the close result would cripple whichever man ended up in the Chancellory.

"It would have been better if one party had received a clear electoral mandate," said DekaBank economist Andreas Scheuerle.

"The reform backlog will continue."

Unemployment in Germany, Europe's largest economy, remains stubbornly high at around 10% and recession fears are strong.

"If we are looking for change in Europe, and change in Germany in particular, this result is disappointing," said CSFB chief European economist Julian Callow.

Weak investment

The election campaign did much to alienate foreign investors, analysts said.

"Not only have Schroeder's government failed to carry out the necessary reforms, they behaved like a bull in a china shop in the most recent dispute with the US government," said BDI industry association chief, Michael Rogowski.

Mr Rogowski referred to Justice Minister Herta Daeubler-Gmelin's comparison of the policies of President George W Bush and Adolf Hitler.

"That will have an impact on the economy," Mr Rogowski said.

In addition, many investors would shy away from Germany, said Fred Irwin, vice-president for corporate clients at Citibank and president of the American Chamber of Commerce.

"Without [economic] reforms it will be more difficult to convince our companies to invest in Germany," he said.

Schroeder's commitment to postpone 7bn euros (4.43bn; $6.89bn) in tax cuts to pay for recent flood damage would also burden economic growth because consumer spending would be held back, insisted the country's leading retailer, Metro.

 WATCH/LISTEN
 ON THIS STORY
Klaus Mehrans, IG Metal
"The outcome... is the most favourable from the point of view of the unions in Germany."
Hugh Williamson, FT correspondent in Berlin
"There is a strong chance the greens will be the inventive minds in the government now"
Gerhard Schroeder

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23 Sep 02 | Europe
21 Sep 02 | Media reports
20 Sep 02 | Business
20 Aug 02 | Country profiles
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