Angela Merkel’s CDU party wins German Federal Election, whilst far right party AfD makes huge gains

Sep 25 • Extras • 194 Views • No Comments

A Pyrrhic victory is a victory that inflicts such a devastating toll on the victor, it’s tantamount to suffering an actual defeat. Someone who obtains a Pyrrhic victory has been victorious, although the heavy toll negates any true sense of achievement, or profit.

Whilst not (by definition) a Pyrrhic victory, Angela Merkel, the current and continued leader of the Christian Democrat Union Party in Germany, as well as being one of the longest servings chancellors of Germany, must be feeling a sense of devastation and disappointment. Despite winning a fourth term, she’s enabled the far right anti-immigration party (the AfD), to rise in popularity and achieve approx. 13.5% of the popular vote, according to the late exit poll. Inside such an advanced society as Germany, it must have come as a real body blow, for the four times chancellor.

The AfD ran their campaign on a very narrow mandate and transparent platform including; the closing of mosques and the immediate repatriation of all refugees, a campaign which pluralistic politicians such as Merkel, had hoped would not have wide ranging appeal.

Despite insisting that the immigration measure was only temporary, the humane welcome and charitable treatment Germany offered to (in particular) in excess of one million desperate and down trodden Syrian refugees, has backfired on Merkel. The chaos in the Middle East is not of Germany’s doing, but sections of Germany’s voting public has punished both her party and the social democrats at the election, for allowing such numbers to be given a safe haven in Germany.

The AfD vote surge will ensure that they gain circa 87 seats and be the first extreme right wing party, to enter the German Bundestag Parliament, for 60 years. They won’t be in government, as it’ll now be up to Merkel to horse trade, by negotiating with other more established mainstream parties, to ensure she creates a stable coalition. Merkel will not retain a coalition relationship with the leader of the Social Democratic Party led by Martin Schulz, as they’ve ruled out any shared power arrangement. Schulz must now be regretting running such a dour, uninspiring campaign. Perhaps Schulz would have gained more vote share if he’d have promised greater cohesion and cooperation with Merkel, whilst advocating a united defiance against the AfD and recognising the threat they posed, rather than present direct opposition versus Merkel and the CDU.

Angela Merkel will now have to form a coalition government, an arduous process that could take weeks/months, after sliding to about 33% of the vote, retaining circa 218 seats from 41.5% in 2013. The SPD’s 20% score and a projected 138 seats, is a new new post-war low for the party, who then immediately (and now formally), have ruled out the possibility of a new “grand coalition”.

Both the Left Party and the Green Party also saw their vote share come out below ten percent in the election. However, various political commentators are now predicting that the result will deliver an unforeseen consequence for the Greens; an influence at government level. Angela Merkel’s favoured coalition would have been with the free market, pro business Liberals of the FDP, a return to the “Black Yellow coalition” that ruled Germany for sixteen years under Helmut Kohl. With that single partner aim now rendered impossible, the chancellor may choose to resort to what’s being termed a “Jamaica” coalition; named after the black, yellow and green of the Jamaican flag, the colours respectively of the CDU, FDP and the Green parties.

In terms of FX and European market impact, markets as entities prefer certainty and with Merkel leading the country and indeed being recognised as the most dominant and prominent politician in Europe, her continuity will no doubt result in a sense of market relief. Despite German coalition negotiations previously taking weeks, if not months, the euro is unlikely to experience severe negative movements due to the result and neither is Germany main DAX market, or any wider European index.

As FX markets opened late Sunday the election, the effects on the euro were immediate, EUR/USD falling through S1 to reach, but not breach S2, to then recede back to S1. The euro also experienced similar, albeit smaller falls, versus several of its peers, many pairs reverted back to the daily pivot point, at approx 00:30am London time. But with such a fluid and quickly moving dynamic situation, with the coalition yet to be formed, investors would be advised to monitor their euro positions carefully and to take the relative precautions to guard against sudden swings.

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