Angela Merkel's departure could bring influx of private investment to Germany

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Angela Merkel's departure from German government may result in a massive influx of private investment.

Driving the news: The center-left Social Democratic Party, led by chancellor candidate Olaf Scholz, clinched a narrow victory in Germany's federal elections. It now will seek to form a coalition government by year-end with the Greens and the Free Democrats.

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  • Everyone in that potential coalition agrees that Germany needs to boost public spending, which has been around net-zero for more than a decade. Particularly when it comes to areas like digitizing and greening the country's economy.

But they don't agree on how to get there.

  • Greens, who want huge new public investment, proposed a wealth tax and would remove Germany's version of the debt ceiling (which is enshrined in the country's constitution).

  • Free Democrats say tax hikes are a nonstarter and that the "debt brake" must be respected.

A likely compromise would be new incentives to attract outside investment, including from private equity firms that a Merkel lieutenant once famously derided as locusts. Particularly now that there is so much dry powder devoted to infrastructure, broadly defined.

  • Private equity investment in Germany hit records in 2019, before pulling back a bit last year because of the pandemic.

  • The upshot is that investors are ready for increased opportunity and have personnel in place.

The bottom line: No coalition government ever exists until it does, so there's still time for political maneuvering. But yesterday's results set the stage for Germany to formally hang a "welcome" sign for the onetime locusts.

Go deeper ... German election: Social Democrats narrowly beat Angela Merkel's bloc

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