UBSW: Preview of the confidence vote in Germany today Vote of confidence on SchrÃ¶der's government today

The vote of confidence in the German lower house of parliament, the 
Bundestag, is scheduled to take place at 11.00 GMT today, the result 
should be out 15 to 20 minutes after that.

In test votes in the government coalition's factions this morning, only 
four Greens voted against the government. As there was one defection 
from the SPD faction yesterday, but all other SPD MPs voted for the 
government, Chancellor SchrÃ¶der looks set to win the vote of 
confidence, but it is a very tight race. 

SchrÃ¶der needs 334 yes-votes of the 666 total votes in the Bundestag 
and is likely to get 336 according the tests this morning.

If he loses, SchrÃ¶der has three options: 

1) Form a coalition with the liberal FDP until the federal election in 
the autumn of next year,

2) remain in the seat with a minority government and hope on support 
from other parties for the remaining issues of the term,

3) ask the President of the Federal Republic to dissolve Parliament and 
call new elections.

We feel that options 3) is the most likely of these options, 1) has a 
decent probability as well but 3) is unlikely.

It is possible that the market appreciates the outlook for a more 
conservative government and plays ideas like earlier tax cuts and/or 
cancellation of the scheduled hike in energy taxes if SchrÃ¶der fails. 
However, we believe that there will be little change in politics, 
especially in economic issues, as the budget is very tight. So hopes 
for more fiscal stimulus should be short-lived if they occur at all. 
There is in any case going to be more uncertainty if SchrÃ¶der fails 
which is never good news, but which should also have only a limited 
impact on financial markets.



_______________________________________________
Holger Fahrinkrug
Senior Economist
UBS Warburg AG
StephanstraÃe 14-16, D-60313 Frankfurt, Germany
Tel. +49 69 1369 8280
Fax +49 69 1369 8221
Email: holger.fahrinkrug@ubsw.com

 


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