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Home / News / German election result casts doubt on eurozone integration plans

Angela Merkel may have won the election, but the German chancellor’s plans for closer eurozone co-operation may face tough opposition from likely coalition partner the FDP. Natasha Turak reports.

Angela Merkel has won her fourth term as German chancellor in a victory that many had predicted – though lacking the wide margin of victory her party had hoped for.

Ms Merkel’s centre-right Christian Democratic Union (CDU) party, together with its sister party the Christian Social Union (CSU), ended the day with 33% of the vote, down from the 41% they enjoyed after the 2013 federal election, making it the lowest CDU win since 1949.

Meanwhile their main rival, the Social Democrat Party, fell to 20.5% and announced it would head into opposition rather than form a coalition with Ms Merkel. Germany’s far-right nationalist party Alternative for Germany (AfD) claimed its first seats in parliament with a historic high of 12.6%, marking the first time an overtly nationalist and anti-immigrant party will sit in the Bundestag in more than half a century.

“While her final vote count was lower than many expected, a fourth term for Angela Merkel is certainly a mark of stability for Germany,” said Jordan Hiscott, chief trader at Ayondo Markets. “If we compare it to the most recent European elections, and certainly the French election, the result was what many investors would have wanted, which is a stable and predictable outcome.”

A projected coalition with the pro-business Liberal Free Democrats (FDP), who are notably fiscally conservative, has engendered some confidence in Germany’s ability to push for greater fiscal discipline in other EU countries. This has, at the same time, stoked concern among pro-EU leaders that greater eurozone integration – something Ms Merkel together with French president Emanuel Macron had hoped for, but the FDP opposes – may not happen.

Meanwhile, the third party in Ms Merkel’s tenuous coalition – the leftwing Greens, on 8.6% – will likely be a source of opposition to the FDP, resulting in probable conflicts of opinion going forward.   

Analysis from the Economist Intelligence Unit (EIU) predicted the AfD would be the largest opposition force in the event another coalition was formed. “This will provide a strong incentive for the CDU/CSU, the FDP and the Greens to reach an agreement,” the EIU report concluded.

After the election, Ms Merkel said that while the results were not as positive for her party as it had hoped, the CDU still overcame “extraordinary challenges” in the past few years – particularly concerning Europe’s migrant crisis – to remain Germany’s largest party, with 218 Bundestag seats.

Markets are stable in the wake of the results. German Bund prices are up, while the euro is facing some pressure due to apprehension over the increased opposition the chancellor will now face. Germany’s 10-year Bund yield is down 2.6 basis points and the euro slipped 0.6% to $1.1185. German and European equities, meanwhile, remain positive.

This article is sourced from fDi Magazine
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