Germany coalition talks: where now for Merkel?

23/11/2017

Download

​Having fared worse than expected in the September elections in Germany, incumbent Chancellor Angela Merkel was expected to be able to form a so-called ‘Jamaica’ coalition (named because the parties’ combined colours resemble those of the Jamaican flag) between her Christian Democratic Union (CDU) party, its sister party (the Christian Social Union), the Free Democratic Party (FDP) and the Greens. However, after more than a month of wrangling, the FDP party, which only recently returned to the Bundestag – having previously slipped below the 5% minimum threshold – has pulled out of talks.

So it is back to the drawing board, but one where there are now no guidelines as to how things may pan out from here. There are a number of alternatives, such as renewed elections (perhaps in April 2018), or a minority government handling issues as they come up, or even an unexpected repeat of the previous ‘Grand Coalition’ with the Social Democratic Party of Germany (SPD). However, for the latter to happen, the SPD would have to explain why it has retreated from a previous statement that it would not form a coalition with the CDU, after their worst election results in the post-war era.

Nonetheless, the pressure is great from both German President Wolfgang Frank-Walter Steinmeier and highly respected and experienced politicians such as former Finance Minister Wolfgang Schäuble, to compromise and form a working coalition. Germany has a tradition of pragmatism in politics and I expect some kind of agreement to happen over the next few weeks. Angela Merkel also remains highly respected, both within and outside Germany, and I believe that she will retain her position as Chancellor.

In the meantime, the German government continues to function as before the election, so it is unlikely that we will see any significantly negative impact on the economy. But the direction of travel is clear; whatever kind of coalition is formed in Germany, there must be progress on the issues that led to political gains for the AfD (Alternative für Deutschland), Marine Le Pen in France and Geert Wilders in the Netherlands.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.

Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its us.


Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Horizon Pan European Equity Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating

Share

Important message