German Coalition Attempt Collapses

Angela Merkel has failed to form a new German government, will the world’s fourth-largest economy be forced to call new elections?

The euro fell as German coalition talks came to a dramatic end on Sunday. Disputes over migration led the Free Democratic party to end negotiations with Merkel’s party, the Christian Democratic Union of Germany.

The euro fell as much as 0.6% in the wake of the deadlock. Meanwhile, Germany’s DAX 30 touched a seven-week low.

However, as the European session got underway, the euro rebounded, now 0.07% lower against the dollar. Similarly, German stocks have gained traction, moving 0.14% higher and trading just under €13000.

There is now three options Angela Merkle has: she can try a coalition with the centre-left Social Democrats, though the SPD have repeatedly ruled this option out, or the chancellor can rule with a minority government. The final option is to call a new election.

Investors could become increasingly concerned in the event of a repeat election, as the right-wing Alternative for Germany party could gain increased support.

The deadlock is particularly worrying to investors as Germany has represented stability for the eurozone post the second world war.

Merkel’s Christian Democratic Union has led Germany since 2005, however the summer election showed the majority was sharply reduced.

Other key areas of conflict which helped breakdown the coalition were climate change and tax policy.