Kohl Ouster Overshadowed By Fed
After 16 years as Germany's iron chancellor, Helmut Kohl is gone. But a look at European bourses, which were broadly higher Monday, suggests the markets aren't in a mourning mood.
Right now, hopes are brightly fixed on Tuesday's meeting of U.S. Federal Reserve Board's policy-making open market committee. Most money is betting on an interest rate cut.
In the U.S., the Dow Jones industrial average was up 121.78 or 1.52 percent at 8.150.55 at 2 p.m. EDT.But what of Kohl, who was ousted Sunday by the Social Democratic Party's (SDP) Gerhard Schroder? He has been the face of Germany and the uncompromising, driving force behind European Monetary Union for years. He has also made a commitment to restructure corporate Germany, which has long been dominated by unions. This has made him a cozy friend of the marketplace.
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That's not to say the markets haven't noticed. The dollar gained some strength against the Deutsche mark during Monday's session, reflecting a whiff of worry about what Schroder's financial coalition will mean for the market place. Two hours after polls closed in Germany, Schroder said he wanted a "stable majority" to govern. But the markets worry that Schroder will not be as progressive as Kohl on the fiscal and economic front - and that political factions will spring forth.
"A significant change on the political frot gives the market a touch more uncertainty," says Stephen Hannah, chief economist at IBJ International in London. More worrying is over Schroder's perceived favorite for finance minister - the left-leaning Oskar Lafontaine, the SPD leader.
"He's a bit more left-wing. The focus is going to be on getting unemployment down," Hannah added. The markets are worried - does this mean deflecting corporate profits to labor? That's not so good for equities," he added.
Ian Gunner, an economist at ABN Amro, agrees: "This raises the question, how committed is Germany to pursuing private sector reform to compete globally?"
Still, Schroder is the first man to defeat an incumbent chancellor in the life of the Bonn republic. And for the moment, with plenty of other bigger problems on its mind, the markets seem willing to give him the benefit of the doubt - for now.
Written By Suzanne Miller, CBS MarketWatch London bureau chief