"Worst Case Scenario" Looms As Merkel's "Jamaica Coalition" Collapses

We warned on Friday that German Chancellor Angela Merkel faced a 'night of the long knives' in her efforts to bring together the co-called 'Jamaica' coalition of four parties and after a desperate weekend of talks, Bloomberg reports Merkel's efforts at forming a coalition have failed meaning a second election looms and sending the euro sliding.

As Bloomberg reports, talks on forming German Chancellor Angela Merkel’s next government collapsed, throwing the future of Europe’s longest-serving leader into doubt and potentially pointing the world’s fourth-biggest economy toward new elections.

After a 12-hour negotiating session that ended shortly before midnight Sunday, the Free Democratic Party walked out of the exploratory talks, saying the differences with the Green party were too great to bridge.

Merkel has sought for four weeks to enlist the two smaller parties for her fourth-term coalition.

“It’s better not to govern than to govern badly,” FDP head Christian Lindner told reporters in Berlin.

No further coalition talks were scheduled, he said. There was no immediate comment from Merkel.

EURUSD is down aroound 80 pips on the news...

As MINT Partners' Bill Blain noted previously, Germans are not used to multiple elections – and a second vote early next year would be massive negative for Merkel herself – she may even have to stand down if coalition looks like falling. That could be massive shock.

As a result, the prospects for more volatile European peripheral markets, particularly Greece and Italy, are likely to be exacerbated, and we might well see some of the currency and European stock market froth blow away in coming days as the scale of the “German Problem” becomes clearer.

  • My worst case Germany scenario is a second election early next year, political uncertainty as Mutti Merkel finds herself squeezed out, and a scramble to build a new coalition government in her aftermath.
  • The best case scenario isn’t much better: that Merkel manages to forge a new coalition, but it will be a long drawn out affair and the resulting administration will be vulnerable, weak and fraxious.

These sound like German problems, but they mean the “leader of Europe” is likely to be entirely inward focused in coming months/years.. at a time when the European union will be facing a host of new issues regarding closer union, banking union and reform of the ESM, bailout and QE policies. There will also be new potential crisis points – Italian elections next year, Greece bailout, renewed immigration crisis or a blow-up with Trump. And these are just the known unknowns.

This has profound implications for the so-called French/German axis as it slides towards Paris. We are not going to see a new German government “waste time” on issues like closer EU union, European Banking Union, or critical finance issues like reforming ESM or new approaches on QE and Bailout funds. Forget Wiedemann for ECB president, it’s more likely to another Frenchman (Trichet II) – I’m sure its already underway. In short.. Germany negotiations could get very fraxious while Europe is dragged down in its wake. I doubt the markets have discounted it yet.


Haus-Targaryen forexskin Mon, 11/20/2017 - 05:25 Permalink

This is all political theater. In the EU, some 80% of all regulation ultimately comes from Brussels -- the other 20% are fairly toothless. In Germany, you have 87% of the population that wants MORE "European Integration" while 13% does not. It matters not who or what kind of coalition is formed, the results will be the same. 

In reply to by forexskin

Haus-Targaryen Song_Of_Roland Mon, 11/20/2017 - 05:51 Permalink

Not sure how the AfD will fare. I think it will only help it as its around 15% whereas they get a little less than 13% previously.  Anything 15% of more from the AfD really starts screwing up the math for a coalition government ... save for Union/SPD again. I think the best thing that could come from this is simply political instability and a stalemate in German politics where essentially nothing happens for the next few years. And yes, while 67% of the population voted against Merkel, 87% of the German population voted for MORE EU integration, a idea and policy that all other "major" parties are behind, including FDP. Same can be said for NATO, with a few caveats with the Linke on that one -- but I digress. The Germans want more EU integration, and they'll most definitely get it.  Not sure about you, but do you have as much fun as I do watching everything slowly going to Hell here and everyone blaming literally anything and everything save the EU.  "Its American Foreign Policy that is doing it to us" or "Its the Russians" or "Its the banks" or "Its Capitalism" or "Its the Linke Flügel" or "Its corruption in the PIGS" etc., etc., etc., As soon as you mention the EU, everyone from left to right almost unanimously agrees that the EU is doing the right things and everything they can to fix the above problems.  Its like a cult at this point. 

In reply to by Song_Of_Roland

Sy Kloine Bee JohninMK Mon, 11/20/2017 - 03:11 Permalink

Keep dreaming, it's all a show. Neither the EU, nor the UK gov't will ever allow a real Brexit.  It will be a Brexit in name only if it happens at all.  Likely they will just keep dragging it out until either 1) it is politically convenient to cancel it 2) there will be a major event - a contrivance, a false flag, an economic event, a war perhaps - which gives a reason for continued membership.  The EU is to be the new Soviet Union, and "more Europe!" is the cry of the Bolshevik marrano.

In reply to by JohninMK

JohnGaltUk Sy Kloine Bee Mon, 11/20/2017 - 07:31 Permalink

The EU is not going to last. Look at those deparate European clowns trying to pretend they are one big happy family.The only thing that is holding it together at the moment are all the manderins that have a vested interest and do dont want to see their big fat pensions disappear which they are going to anyway.The bond bubble will end Europe as we know it. When sovereign bonds fail, there goes the whole European banking sector and your pensions. It will spell the end of socialism in Europe. Amen.

In reply to by Sy Kloine Bee

Thoresen JohninMK Mon, 11/20/2017 - 03:29 Permalink

“Much less, so we are pulling our contribution to EU Government out in March 2019.
Expect more 'bad' headlines on Brexit as a diversionary tactic from this mess.”

Now being reported that German industrialists are looking for ways for the UK to stay in the EU but with border and migration controls. That should strengthen May's hand, but she just looks as if she is going to agree to pay a bigger exit fee.

In reply to by JohninMK

malek Richard Chesler Sun, 11/19/2017 - 19:27 Permalink

Actually, a few days ago I realized that in 2015 she may have thought like this:
"I am not a politician that is liked by my voters emphatically, and now facing the migrant crises where I have to choose between doing the right but difficult thing or just give way and attribute it to my (and the German peoples') empathy.
Well my big idol Helmut Kohl pulled the "Pflegeversicherung" ("long term care insurance") out of the hat in 1994(*) and with that practically guaranteed his reelection in October of 1994.
Maybe I should do the same approach now!"

Well that didn't turn out as expected...
(*) opening up another bottomless pit besides the existing federal "retirement insurance" for everyone

In reply to by Richard Chesler

junction BuddyEffed Sun, 11/19/2017 - 20:00 Permalink

Thanks for the information on this 7.0 earthquake.  Statrting in Iran a week ago, where a 7.3 earthquake struck, there has been earthquake activity across the world.  Most of the quakes and aftershocks have been small.  Like the 2.8 Richter scale Tasmanian earthquake on April 12, 2011, which struck one month before the Tohoku 9.0 earhquake on May 11, 2011.  

In reply to by BuddyEffed

fajensen johngaltfla Mon, 11/20/2017 - 04:43 Permalink

When I hear "Jamaica Coalition", I think of Kingston, Jamaica - where the SAS sends medics to get the best hands-on training in the world on the treatment of real-world gunshot wounds.Germany will be the world training center for knife wounds, the UK will be the "Acid Burns Educational Facility", Sweden will be dick-in ass-wounds.... If the future isn't bright, at least its Colourful, maybe that's the deal with "Jamaica!?

In reply to by johngaltfla

???ö? max2205 Sun, 11/19/2017 - 18:32 Permalink

"Jamaica' coalition"...  dnd we thought only Clinton has bad tag lines.How fucking detached from reality are these tools.  Everything in their eyes is color, diversity, and humanity.Not a fucking ounce of animal instinct, just like the shitty equity markets they pretend to run.  

In reply to by max2205