Germany’s complacency

September promises to be an interesting month for markets. In America, the Federal Reserve meets to discuss whether to slow (or taper') its quantitative easing (QE) programme, and if so, by how much. But markets are also on tenterhooks ahead of the German election on 22 September.

Campaigning so far has been "downbeat", says Kate Connolly on Guardian.co.uk. The highlight of Sunday's TV debate between Chancellor Angela Merkel, leader of the Christian Democratic Union, and rival Social Democrat (SPD) leader Peer Steinbrck, was Merkel's necklace in the German national colours, which soon had its own Twitter account.

The debate was the "predictable anti-climax" of a campaign devoid of big ideas, says The Wall Street Journal. Steinbrck plans raising taxes on the highest earners and a nationwide minimum wage of €8.50. Merkel, who leads in the polls, is running on her personal appeal and economic record. That's little wonder. Unemployment is near a record low, and Germany GDP growth outpaces most of the eurozone, with 0.7% growth in the second quarter.

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But this "breeds policy complacency", says The Wall Street Journal. Merkel has benefited from the previous Social Democrat government's reforms, but failed to introduce any of her own, yet Germany's rigid labour market would benefit from some.

Many sectors are controlled by trade associations, with entrepreneurs finding it hard to launch new businesses. Services firms "lag severely". Staff are either protected from redundancy on permanent contracts or struggle on short-term ones with little protection. Tax cuts would boost job creation, but are a "vote-loser". But Merkel should make a "more forceful case" for why Steinbrck's proposed tax hikes will harm businesses that are "the bedrock of German growth".

For markets the main question is whether or not a re-elected Merkel will soften on austerity, says Ralph Atkins in the FT. A "sea-change" in German thinking might follow if she has to join with the centre-left SPD, keen to "express solidarity" with weaker eurozone members. But this character shift "seems unlikely" Merkel's high poll ratings are partly down to the tough line she has taken on the euro crisis, after all. "With an emboldened, freshly re-elected Merkel, the potential for eurozone upsets may simply rise."