Markets rattled as German coalition talks collapse – business live

Here’s a chart of the euro’s sharp moves against the US dollar this morning:

However, the euro is still down 0.5% against the pound, at €1.125.

Dutch foreign minister Halbe Zijlstra has warned that the collapse of German coalition talks last night is ‘bad news’ for Europe.

Zijlstra told reporters in Brussels that:

“Germany is a very influential country within the EU so if they don’t have a government and therefore don’t have a mandate it’ll be very hard for them to take positions.”

(thanks to Reuters for the quote)

Peter Thal Larsen, European editor at Breakingviews, sums up the situation:

Political economics professor Henrik Enderlein says Angela Merkel has been “seriously weakened”, with no easy way forward.

The possibility that Angela Merkel could be forced out of the German Chancellery will worry the City, says Rebecca O’Keeffe, head of investing at interactive investor.

“European equity markets have picked up where they left off last week, heading lower after the FDP walked out of German coalition talks. Angela Merkel has been the glue that has held the European Union together for the past 12 years, a stable force in turbulent times.

Chancellor Merkel is also one of the few European politicians who has demonstrated she may be prepared to compromise with Britain, rather than run the risk that Prime Minister May is replaced by a hardline Brexiteer. With almost unsurpassed political experience, markets will want Germany to find a quick solution, preferably one that leaves Mrs Merkel in situ.

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Ulrich Speck, senior research fellow of the Elcano Royal Institute think tank, says the collapse of the Jamaica coalition talks could be a major moment in German politics, and beyond.

The pound is gaining ground against the euro this morning, up 0.25% at €1.1235.

Angela Merkel will meet with Germany’s president, Frank-Walter Steinmeier, later today to discuss the situation.

Steinmeier is a leading figure in the left-wing Social Democrat party – who came second in September’s election but refused to enter another Grand Coalition.

Marc Ostwald of ADM Investor Services suspects that a minority government made up of Merkel’s CDU/CSU and the Green party might have decent survival prospects, as the SPD could support much of its legislative programme.

He adds:

As a point of historical note, there is no precedent for fresh general elections so quickly after the previous one. I would not want to second guess this situation, but with Steinmeier being president, and the risk that any or all of the CDU, SPD and FDP take a hammering if fresh elections are held, it might be the compromise outcome.

Germany’s DAX stock index has fallen by half a percent at the start of trading in Frankfurt.

Postal operator Deutsche Post, financial group Deutsche Bank and industrial giant Thyssenkrupp are leading the fallers.

But…energy provider RWE have jumped by almost 4%. That’s because German’s Green party would have pushed for coal-fired power plants to be shut down had they joined a coalition.

Other European markets have also dipped into the red.

Lukman Otunuga, research analyst at FXTM, fears that Angela Merkel’s failure to form a new government could drive markets lower.

With this bombshell development heightening concerns over political instability in Europe’s largest economy and sparking speculation of fresh elections, the Euro may be in store for further punishment.

Although Europe’s encouraging macro fundamentals may offer some background support to the Euro long term, political risk has the ability to trigger further selloffs in the shorter term.

Germany’s coalition conundrum puts the whole future of Europe into doubt, says Dean Turner of UBS Wealth Management.

He told Bloomberg TV that:

The clear risk is that if Angela Merkel was not going to continue as chancellor, what would that mean for Europe?

With Emmanuel Macron elected in France, the push to rebuild the Franco-German alliance, to restructure Europe and make new reforms would be put into question.

Our correspondent in Berlin, Philip Oltermann, says Merkel’s position as Germany’s leader is now under scrutiny, following the collapse of coalition talks.

He writes:

With talks now seemingly over, Merkel could seek to form a minority government, either with the FDP or the Greens, and gather support from other parties on individual policy votes.

The Social Democrat leader, Martin Schulz, whose party has played junior partner to Merkel in the German government for the past four years, ruled out the possibility of another grand coalition under his leadership. “The voter has rejected the grand coalition,” Schulz said at a party conference in Nuremberg on Sunday.

Once all other options are exhausted, Germany’s president, Frank-Walter Steinmeier, could dissolve the current parliament and call fresh elections. To get there, however, Steinmeier would need first to set into motion a complicated process that would involve a parliamentary vote on Merkel’s role as interim chancellor.

While the debate in Germany over the past few weeks has mainly focused on policy differences between the parties, it is likely to soon shift to the chancellor, and the question of whether or not she still commands sufficient power to hold together a strong government.