Lighthouse Investment Management

Red Alert
Germany to allow referendums

Red Alert - November 12, 2013

Page 1

Lighthouse Investment Management

According to reports in Sddeutsche Zeitung and Bavarian Radio, Germans might be able to vote in referendums (so far only possible locally, but federally only in very specific cases, out of fear of populist / racist causes after the Third Reich): http://translate.google.com/translate?sl=de&tl=en&js=n&prev=_t&hl=en&ie=UTF8&u=http%3A%2F%2Fwww.sueddeutsche.de%2Fpolitik%2Fkoalitionsverhandlungen-union-undspd-wollen-bundesweite-volksabstimmungen-1.1816241 The proposal mentions topics such as potential new entrants to the EU, shifting of competences to Brussels or Germanys financial obligations at EU level. This is obviously a nod to the AfD (anti-Euro party, which almost made it into parliament at recent federal elections). The AfD came within 27,000 votes of the Liberals (FDP, former coalition partner of Angela Merkels CDU/CSU):

The proposal also contains the option for referendums on laws passed by Bundestag (House of Representatives / Lower House), permissible upon collection of 1 million signatures within six months of passage. (Germany has 80 million inhabitants, of which 43 million participated in recent national elections.) For success of a referendum, a simple majority of votes cast would suffice (no quorum needed). This is quite a low bar.

Red Alert - November 12, 2013

Page 2

Lighthouse Investment Management

The proposal only foresees a requirement for the referendum to pass in enough Lnder (states) comparable to a majority in the Bundesrat (Federal Council / Upper House)

I am not sure if politicians understand they will 'set the cat free among the pigeons'. Maybe it is intended. By pointing out the threat of a referendum, Mrs. Merkel could more easily refuse bailing out other countries with German taxpayers money. The possibility of referendums increases Germanys negotiating power, and makes austerity probably even harsher for over-indebted countries. It will be interesting to see how this plays out for potential bailouts of Slovenia and Croatia. In case of local bank failures, a confiscation of deposits (with Cyprus as a template) now seems inevitable.

Any questions or feedback welcome. Alex.Gloy@LighthouseInvestmentManagement.com

Disclaimer: It should be self-evident this is for informational and educational purposes only and shall not be taken as investment advice. Nothing posted here shall constitute a solicitation, recommendation or endorsement to buy or sell any security or other financial instrument. You shouldn't be surprised that accounts managed by Lighthouse Investment Management or the author may have financial interests in any instruments mentioned in these posts. We may buy or sell at any time, might not disclose those actions and we might not necessarily disclose updated information should we discover a fault with our analysis. The author has no obligation to update any information posted here. We reserve the right to make investment decisions inconsistent with the views expressed here. We can't make any representations or warranties as to the accuracy, completeness or timeliness of the information posted. All liability for errors, omissions, misinterpretation or misuse of any information posted is excluded. +++++++++++++++++++++++++++++++++++++++ All clients have their own individual accounts held at an independent, well-known brokerage company (US) or bank (Europe). This institution executes trades, sends confirms and statements. Lighthouse Investment Management does not take custody of any client assets.

Red Alert - November 12, 2013

Page 3