German Political Uncertainty Increases As FDP Walks Out of Coalition Negotiations

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German Political Uncertainty

Coalition Talks Break Down

On Sunday evening, the first attempt to form a “Jamaica coalition” in Germany failed. The CDU-CSU, FDP and Greens were unable to come to an agreement, ending with the FDP walking away from negotiations on the grounds that the compromises needed to secure a coalition would jeopardise the party’s electoral line.

Given this development, the expected outcome of Angela Merkel retaining her role as Chancellor for a fourth term, as head of a Jamaica coalition, is now looking extremely unlikely. The failure of these talks has led Germany into a position of extreme political uncertainty not seen in generations.

Jamaica Coalition Now Looks Extremely Unlikely

Initially the market had expected that a Jamaica coalition would be formed. However, with the FDP having walked out of negotiations over the weekend this looks extremely unlikely unless the party has a last-minute change of heart. While there are significant differences between the CDU/CSU and the FDP, the two parties aren’t politically polarised. However, in order to secure an agreement, Merkel would need to make large concessions, especially around issues such as immigration which, up to thi point, she has refused to do.

On an electoral basis, the FDP doesn’t stand to gain much from re-entering negotiations. Over 70% of its voters are in favour of new elections if a Jamaica coalition is not achieved and the party stands to lose a lot of support if it agrees to enter a coalition which stands in contrast to its election programme.

Grand Coalition a Possibility

Another potential outcome would be another grand coalition between the CDU/CSU & SPD. However, recent comments by SPD leaders have made it clear that this is also, extremely unlikely as the party is strongly reluctant to entering into another coalition with the CDU/CSU given that support for the SPD seems to have dwindled over the course of its participation in a coalition government with the CDU/CSU from 2013 – 2017. During this election the SPD got its lowest number of seats since 2009, scoring just 153 seats versus 146 in 2009.

Alongside this, recent press reports show that the SPD has decided it is in favour of new elections and is firmly opposed to entering into negotiations regarding the prospect of another grand coalition. Given that the prospect of a coalition including the AfD or Die Linke seems extremely unlikely, these two coalitions (as unlikely as they are) appear to be the only two credible options.

What Happens If No Coalition Is Agreed?

The German constitution outlines that if the Chancellor fails to achieve an absolute majority in the Bundestag, then the President (Frank Walter Steinmeier) will propose a candidate for the Chancellery which will be followed by an attempted election. The first two rounds require an absolute majority. If the candidate cannot achieve an absolute majority, then there is a third round of voting which requires on a relative majority.

If the candidate can secure a relative majority, the President can confirm the candidate as Chancellor which would entail setting up a minority government or calling for new federal elections.

Steinmeier is has highlighted that he is clearly not in favour of further elections as he intervened in proceeding, calling for the parties involved not to return the mandate to voters and instead encourage them to reconsider their willingness to form a government.

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.

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