Analysis-After Trump, German political crisis engulfs industry

By John O'Donnell, Tom Sims and Christoph Steitz

A political crisis at home threatens further pain for Germany's car, banking and energy industries, as they grapple with an increasingly hostile world following the election of Donald Trump and trade tensions with China.

Germany is bracing for months of uncertainty after its governing three-party coalition crumbled following a series of disputes, most recently on how to jump-start its flagging economy, Europe's biggest.

Its second-largest lender, Commerzbank, had been looking to Berlin to shield it from an unwanted takeover by an Italian rival, while industry was hoping for a nationwide initiative that could buoy the fortunes of car-maker Volkswagen and others.

Now the government is effectively a caretaker administration ahead of fresh elections, hobbling its ability to overhaul policies and cutting Germany's companies adrift.

"In the face of global crises and uncertainty, we need clarity," said Christian Kullmann, CEO of chemicals group Evonik Industries. "The path to new elections must be as fast as possible. The U.S. or China is not waiting on us."

Earlier this week, Donald Trump won reelection as president of the United States, fuelling fears in Europe of trade tariffs on European manufacturers and further confrontation with China, Germany's biggest trading partner.

The 20% tariffs on Europe signalled by Trump during his campaign could lead Germany's export-dependent economy to shrink as much as 1.5% in 2027 and 2028, a report by German economic institute IW found.

But no sooner had that news sunk in, the German Chancellor Olaf Scholz fired his finance minister, Christian Lindner, as months of simmering tensions over spending and industry policy bubbled over.

That threw the liberal party out of government, ending the coalition, which together with Trump's election delivered a double-whammy to Germany. Deutsche Bank economist Robin Winkler said it was "uncertainty times two".

FADING HOPES

Scholz, flanked by German and European flags at a hastily arranged news conference on Wednesday evening, promised to deliver a raft of measures for approval in December on hot-button issues like pensions and immigration, as part of a 49-point growth package.

"This includes immediate measures for our industry, which I am currently discussing with companies, trade unions and industry associations," Scholz said.

With no parliamentary majority and demands from the opposition for Scholz to call an immediate vote of confidence and elections, hopes have all but foundered that any of the measures will materialise.

Commerzbank, whose management has appealed to Berlin for support in its bid to reject the advances of Italy's UniCredit, will also struggle to make its voice heard.

Although Scholz and other political leaders have publicly backed Commerzbank in its quest to remain independent, a fraught election, where some parties face potential extinction, will distract them.

Some people familiar with Commerzbank's thinking fear that UniCredit could accelerate its plans and make a takeover offer in the coming months, just as Berlin is out of action.

"The government must not lose sight of the Commerzbank case in this situation," said Jan Duscheck, a chief negotiator at the Verdi labour union. "We expect it to take a clear stance against a takeover by UniCredit."

Carmakers, which have helped to underpin Germany's economic might, have been among the hardest hit by the geopolitical reshuffle. Long used to turning to the state for subsidies, the disarray in Berlin makes such support unlikely.

Volkswagen, wrong-footed by the rapid rise of electric cars, has become a symbol of Germany's economic woes, and recently asked staff to take pay cuts, warning it may shut plants in the country for the first time in its 87-year history.

Data compiled by LSEG I/B/E/S shows German company earnings

are expected to fall 2.8% in the third quarter, behind peers in Spain and Britain. That compares with a more than 8% rise expected across Europe Inc.

Scholz on Wednesday promised short-term relief measures for industry, after meeting with executives in recent weeks, among them Volkswagen boss Oliver Blume, to discuss what could be done to ease the pressure on the sector.

It is a promise he can hardly keep.

The political vacuum is also casting doubt over the timeline of the planned stock-market sale of shares in Uniper, which was bailed out during Europe's energy crisis in 2022, according to people familiar with the matter. Berlin's 99% stake, worth more than 19 billion euros ($20.51 billion), is overseen by the finance ministry, now led by Joerg Kukies, but a planned spring re-listing of the group could be eclipsed by snap elections currently planned for March, the people said.

Against the backdrop of general pessimism in Germany, many hold out hope. For some, such as Ludovic Subran, an economist with insurer Allianz, one of Germany's biggest companies, the country is at a historical juncture.

"Is it or is it not an opportunity for Germany to overcome its current shrinking to greatness moment?"