By Adinah Brown
Last Sunday, Angela Merkel secured her fourth term as the chancellor of Germany, but only just. Hours after the results came in, Merkel’s Christian Democratic Union and Christian Social Union (CDU/CSU) were not found celebrating, but planning how to strategize their next steps from what was a very narrow win. In her victory speech Merkel said she had hoped for “a better victory” in what has now been coined the “nightmare election” that has since entailed political uncertainty and a falling euro.
Her coalition achieved only 33% of the vote which will garner her 246 of the 672 seats in parliament, which isn’t enough for her to form a majority government. Although it still represents the largest share of the vote by a significant proportion, the vote share of the center-right alliance dropped by 8.5% compared to the 2013 election. The most alarming aspect of these elections is that this shortfall of votes appears to have been picked up by the far-right Alternative for Germany (AfD) who saw its share jump up to 13%, which will equate to 94 seats in parliament. A far right nationalist party is now the third largest political party in Germany, a development that hasn’t occurred since World War Two.
Even though Merkel is still going to be in a position to form a new government, the destabilizing results have had the effect of unnerving investors and by the day’s close, the euro was down 0.6% against the dollar. Indeed, Merkel is now left scrambling to form a new government, whilst the center-left Social Democrats (SPD) was able to maintain their position as the second largest party in the Bundestag, its share of votes fell to a postwar low. But in any case, the SPD who have been in a coalition with the CDU/CSU since the previous election of 2013, are refusing to renew their coalition this time around.
This is making the political landscape even messier for Merkel, who will be forced to form a multifaceted coalition with a number of smaller parties. The most likely setup is a coalition with the Greens and the Free Democrats (FDP) or she could try to run a minority government, but that tends to be recipe for an unstable government and in the past has only ever led to early elections.
Currency experts at Bank of America Merrill Lynch feel this ultimatum is not a good one, and either outcome will challenge the “market perception of highly predictable and stable German politics”. Until there is any show of certainty, the euro appears likely to endure more turbulence on what was up to now, a healthy and robust upward ascent.
The somber reality is that this round of German elections is following a trend across many developed countries where there is decline in support for mainstream parties and in its place, populist politics has seen a surge in support for parties on the political left-right extreme. The rise of the AfD is likely to herald a risk-on investment period, where traders will be reluctant to touch the euro, as it may herald more political uncertainty in other parts of Europe.
About the Author:
Adinah Brown is a professional writer who has worked in a wide range of industry settings, including corporate industry, government and non-government organizations. Within many of these positions, Adinah has provided skilled marketing and advertising services and is currently the Content Manager at Leverate.
