German, Canadian and South Korean Political Happenings in Perspective

Editors’ note: MarketMinder Europe is nonpartisan, favouring no party nor any politician. Political bias can blind and drive investing mistakes, in our experience. Our focus is only on political events’ potential market ramifications—or lack thereof.

Whilst most commentators we follow fixate on America’s incoming Trump administration, politics are seeing much more action outside America. In recent weeks: Germany’s government lost a confidence vote, setting up a February snap election; Canada’s finance minister resigned, placing its government on shaky ground; and two South Korean presidents were impeached. What to make of it all? Read on!

Unwieldy German Coalition Proves ... Unwieldy

On the heels of France’s government dissolution—and reformation—Germany appears to be following suit. Chancellor Olaf Scholz’s minority Social Democrat-Green Party coalition lost a confidence vote on 16 December, triggering a 23 February snap vote. We think this was all more or less known in early November when the formerly tripartite coalition lost a member, leading the opposition Christian Democratic Union (CDU) to call a confidence vote. The election’s timing was basically the sole unknown, in our view. Prior discussions pointed to March. Now we have an earlier date.

Whilst the CDU and its sister party—the Christian Social Union (CSU)—are currently leading polls, their 30% support implies they would likely need at least one other party to form a government.^[i] With Social Democrats polling in the high-teens alongside the far-right Alternative for Germany (AfD), and Greens in the low-teens—with all others in low-single digits—there is some uncertainty over the next government’s exact configuration.^[ii] Notably, though, CDU/CSU has ruled out partnering with AfD.^[iii]

Campaigning could of course change polls—and election outcome probabilities—but markets so far appear to be taking it in stride. Germany’s DAX, just off record highs (in euros), doesn’t appear too bothered, which seems like the correct attitude to us, though sentiment—and volatility—could swing for any or no reason.^[iv] To this point, we think the backdrop largely seems to resemble the multiparty morass from earlier this year. For all the sound and fury of a collapsing coalition, little looks different to us. Still, we suspect uncertainty could ease early in the year as the parties release their platforms and the race shapes up—especially if we get another complicated government incapable of passing much.

Canada’s Budget Beef

Also this month, Canadian Finance Minister and Deputy Prime Minister Chrystia Freeland resigned unexpectedly over budget disagreements with Prime Minister Justin Trudeau—triggering a firestorm in coverage we saw. Most alarm seems to hinge on her resignation letter’s argument that Canada should “[keep] our fiscal powder dry” to combat potential US tariffs from the incoming Trump administration.^[v] This cuts against Trudeau’s plans for a sales-tax holiday and cash handouts ahead of elections due by October 2025.^[vi]

Some commentators we follow seized on Freeland’s fiscal comments, suggesting Canadian finances aren’t up to snuff. But like the rest of the developed world, we think data tell a different story. Canada’s 10-year yield is 3.23%.^[vii] That is up from early December’s 2.99%, but not materially—and it is down from April’s high of 3.86% and late November’s 3.44%—all historically low.^[viii] These figures are not about to break the bank, in our view. Consider Exhibit 1, which shows Canadian debt service rising relative to revenue, but nowhere near late-1980s/early-1990s levels—which weren’t problematic then. To us, this is a molehill, not a mountain.

Exhibit 1: Canadian Debt Is Easily Serviceable

Source: Statistics Canada, as of 29/11/2024.

Furthermore, even Freeland’s budget update—which many commentators hyped as showing deficits exceeding earlier targets—put the deficit-to-GDP ratio at just 2.1% in fiscal 2023/2024 and projects a decline to 1.6% next year.^[ix] To us, 2.1% is low enough to raise the question, Why is anyone even talking about this?

Now, Freeland’s resignation has rekindled expectations for—and uncertainty over—an early federal election, according to publications we follow, which many think would lead to Trudeau’s Liberal Party’s ouster, based on recent polling. Whilst we think this extends political gridlock in Canada, the potential for government change could raise uncertainty somewhat early in the new year. That could present headwinds to Canadian returns (although the market’s sector concentrations may prove more meaningful). It is a matter worth monitoring as developments continue to emerge.

South Koreans Impeach President—and Uphold Rule of Law

Following a botched martial law declaration 3 December, South Korea’s President Yoon Suk Yeol was impeached 14 December.^[x] This was the opposition Democratic Party’s (DPK’s) second try.^[xi] This time, it passed with 12 votes from Yoon’s People’s Power Party (PPP), bringing the margin to 204 to 85 in the 300-seat unicameral National Assembly.^[xii] But Yoon’s unemployment isn’t a done deal yet. The Constitutional Court is now conducting the trial and must rule within six months.^[xiii] If it supports his removal from office, then an election would be held within 60 days—well ahead of 2027’s scheduled vote.^[xiv]

Precedent is limited and inconclusive. In 2004, the Court overturned President Roh Moo-hyun’s impeachment, but it upheld President Park Geun-hye’s in 2017.^[xv] Complicating matters, the nine-member Court is currently short three justices, and six are needed to sustain an impeachment motion.^[xvi] Also, two standing judges’ appointments expire in April 2025. The DPK pressed Acting President Han Duck-soo, a non-partisan career civil servant, to confirm proposed judges to the vacant slots for a speedy trial, but when he refused on the grounds that, in his opinion, he didn’t have authority to do so, he was then impeached. With Finance Minister Choi Sang-mok now acting president and the Court’s composition in question, so is a verdict, its timing and the likelihood of elections next year. Complicating matters, Seoul’s Western District Court issued an arrest warrant for Yoon on 31 December.

Whilst down from crisis levels, political uncertainty remains elevated for the time being. When there is a ruling, we think it likely provides some relief—though the timing is unclear. In the meantime, remember politics are just one stock driver, in our view. They aren’t the be all, end all for markets.