For the DAX, Sewing’s remarks are unlikely to move the index on their own, since state governments do not set federal economic policy and the index is dominated by global exporters whose earnings depend more on world demand than on domestic politics. The more direct exposure is in German residential property stocks, where the Left Party’s expropriation pledge in Berlin adds headline risk to listed landlords with large holdings in the capital. Over time, a perception of rising political risk could add to the discount investors already apply to German assets, making the pace of Merz’s reforms a more important driver for domestically focused DAX and MDAX names.
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Germany’s top banker is warning that investors don’t read the fine print of federalism: a shock in one state looks like a shock to the whole country.
Summary:
- Deutsche Bank Chief Executive Christian Sewing said the rise of parties on the political extremes poses a significant risk to Germany and should not be played down
- The AfD came close to an absolute majority in Saxony-Anhalt and took first place in Mecklenburg-Western Pomerania last month
- The Left Party scored its biggest win in Berlin’s city election, pledging to expropriate the holdings of residential property companies
- Sewing said foreign investors are unlikely to distinguish between a state government and Germany as a whole
- He urged Chancellor Friedrich Merz’s government to continue reforms to revive the economy, calling it the only answer to extremes on both sides
The head of Germany’s largest bank has warned that recent state election victories for parties on the political extremes could drive away foreign investors, urging the federal government to keep pressing ahead with economic reforms.
Deutsche Bank Chief Executive Christian Sewing told the Bild daily (info via Reuters) that the rise of the far right and far left poses a significant risk to Germany that should not be downplayed. He argued that foreign investors cannot be expected to draw a clear line between a single state government and the country as a whole, and said that perception was understandable from an investor’s point of view.
The comments follow a series of state elections last month. The AfD, which wants to restrict immigration and return asylum seekers, and which security services classify as extremist in some regions, narrowly missed an absolute majority in the state parliament of Saxony-Anhalt. Two weeks later, it took first place in Mecklenburg-Western Pomerania. In Berlin, the Left Party won its biggest victory in the city government election on a pledge to tackle soaring housing costs by expropriating the holdings of residential property companies.
Sewing said developments in both Saxony-Anhalt and Berlin were neither conducive to economic growth nor investment-friendly. Economists have also accused the AfD of fostering a climate that could deter the skilled workers and foreign capital the German economy needs.
The Berlin pledge revives a long-running debate in the capital. Berlin voters backed a non-binding 2021 referendum calling for large landlords’ flats to be taken into public ownership, though it was never implemented. The Left Party’s win puts the issue back on the agenda with a party in a stronger position to pursue it.
Sewing called on Chancellor Friedrich Merz’s government to continue its reform programme, describing it as the only response to extremists on both the right and left. The warning lands as Germany’s economy struggles to regain momentum, with investors watching whether Berlin can deliver reforms quickly enough to offset concerns about the political climate.
This article was written by Eamonn Sheridan at investinglive.com.