Germany's ratings likely unaffected by vote outcome

FRANKFURT: Rating agencies Fitch and Standard & Poor's (SP) said Monday the sovereign debt ratings of Germany and the eurozone are likely to remain unaffected by the outcome of the German election.

Chancellor Angela Merkel and her conservative CDU/CSU parties won the biggest share of the votes at the weekend elections and are now widely expected to ask Social Democrat rivals to form a coalition.

And analysts believe such a power-sharing arrangement will not result in any major shifts in policy, either at home or abroad.

"Any German coalition agreement on fiscal policy is likely to be set with reference to existing targets, limiting the scope for any significant shift to deficit-financed expenditure," Fitch Ratings said in a statement.

In the run up to the election, the CDU/CSU and the opposition SPD had differed in some details on tax and spending policy, but both remained bound by constitutional debt limits and committed to existing objectives, Fitch said.

Having beaten its general government fiscal balance target last year, and met its federal structural deficit target well ahead of the 2016 deadline, "Germany has more fiscal space to absorb potential shocks to the public finances than some other triple-A rated sovereigns with high debt-to-GDP ratios," Fitch said.

"Exceeding fiscal targets or meeting them early demonstrates fiscal discipline and supports our expectation that debt growth has peaked and the ratio will drop to closer to 70 percent of GDP (gross domestic product) by 2017," it said.

For its part, S&P said that "the likelihood of a grand coalition emerging in Germany ... will not directly affect Standard & Poor's Ratings Services' sovereign ratings in the eurozone."

Coalition talks would prove "arduous and could possibly be drawn out until November. The most controversial subjects of the coalition negotiations are likely to be around taxation and labour market policies, but not crisis management in the eurozone," S&P warned.

However, "we anticipate few, if any, material changes in the approach to the eurozone crisis if a grand coalition emerges."

In the past, the SPD had regularly supported the government's stance on eurozone area politics -- both as a coalition partner in the previous grand coalition and thereafter in opposition to the outgoing CDU/FDP coalition.

"Both the CDU and the SPD are generally considered to be favourably inclined toward European integration," the rating agency said.