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| Markets edgy as German president demands responsibility after coalition talks collapse – as it happened | |
| (35 minutes later) | |
| Time for a recap. | |
| European investors are bracing for fresh upheaval after Germany’s coalition talks collapsed overnight. | |
| With Angela Merkel’s position as chancellor looking less secure, analyst are predicting further volatility – and possibly losses in the weeks ahead. | |
| Right now, the euro has lost 0.3% against the US dollar, to $1.176. It has also lost ground against the pound, which is up 0.6% at €1.127. | |
| The markets were jittery after Germany’s Free Democrats walked out of ‘Jamaica coalition talks’ with Merkel’s CDU/CSU bloc, and the Green party. As things stand, there seem to be three outcomes | |
| 1) Merkel tries to govern in a minority government, perhaps with support from the centre-left Social Democrats | |
| 2) Fresh elections are held, likely early next year | |
| 3) The FDP return to negotiations. | |
| President Steinmeier has urged all sides to act responsibly, saying they have a responsibility to do their best to ensure Germany has a stable government. The ball is now in Steinmeier’s court; he must recommend a candidate to be chancellor, which MPs in the Bundestag will vote on. Here’s what might happen next. | |
| After suffering early losses, European stock markets are are little higher this afternoon. | |
| The possibility that Angela Merkel might not govern as chancellor for several more years has caused some head-scratching in the City. It could make it harder for her to offer Brexit concessions to the UK, or to support French president Emmanuel Macron’s push for European reforms. | |
| Wolfgang Bauer, fixed income fund manager at M&G Investments, says the outcome of the German crisis will drive markets in the weeks ahead. | |
| If the grand coalition was to be renegotiated and went ahead, this would mean political stability in Germany and support for risk assets like equities and corporate bonds. I expect that the SPD would be able to push through more of their agenda and this might mean further steps towards European integration, reaching out to Macron. | |
| If however negotiations between CDU/CSU and SPD fail and we are heading towards a minority government or even snap elections, I would expect to see market volatility increase due to rising political uncertainty in Europe’s economic powerhouse. | |
| It would be less likely that any major European integration projects would be pushed forward for the foreseeable future. It is important to note that the tail risk remains and currently it does not seem to be priced in.” | |
| A clip of Frank-Walter Steinmeier speaking this lunchtime, complete with subtitles for English readers: | A clip of Frank-Walter Steinmeier speaking this lunchtime, complete with subtitles for English readers: |
| Unprecedented political turmoil in modern GermanyAfter collapse of #Germany's coalition talks, President #Steinmeier reminds political parties of their responsibility to voters to form a government: pic.twitter.com/0lWN0RgAMd | Unprecedented political turmoil in modern GermanyAfter collapse of #Germany's coalition talks, President #Steinmeier reminds political parties of their responsibility to voters to form a government: pic.twitter.com/0lWN0RgAMd |
| Teneo Intelligence have kindly sent over an explanation of how Germany’s political system will proceed, following the breakdown of the ‘Jamaica coalition talks’ last night. | Teneo Intelligence have kindly sent over an explanation of how Germany’s political system will proceed, following the breakdown of the ‘Jamaica coalition talks’ last night. |
| A Bundestag vote is the next step | A Bundestag vote is the next step |
| As a lesson from the Weimar days, the Bundestag cannot dissolve itself. Neither can Merkel unilaterally provoke early elections via a confidence question. After all, the newly elected Bundestag has never expressed its confidence in Merkel in the first place; she currently serves merely as caretaker. | As a lesson from the Weimar days, the Bundestag cannot dissolve itself. Neither can Merkel unilaterally provoke early elections via a confidence question. After all, the newly elected Bundestag has never expressed its confidence in Merkel in the first place; she currently serves merely as caretaker. |
| Therefore, the next step is necessarily the attempt to elect a chancellor in the Bundestag. There is no time limit, but Steinmeier must eventually propose to MPs a candidate he deems best placed to win support in the Bundestag – this remains likely to be Merkel, lead candidate of the strongest parliamentary group. Without any coalition agreement in place, she will not receive the required support of an absolute majority of all MPs (355 out of 709) in the first round of voting. | Therefore, the next step is necessarily the attempt to elect a chancellor in the Bundestag. There is no time limit, but Steinmeier must eventually propose to MPs a candidate he deems best placed to win support in the Bundestag – this remains likely to be Merkel, lead candidate of the strongest parliamentary group. Without any coalition agreement in place, she will not receive the required support of an absolute majority of all MPs (355 out of 709) in the first round of voting. |
| 14 day deadline, caretaker government, and Europe | 14 day deadline, caretaker government, and Europe |
| In consequence, a 14-day deadline kicks in during which this vote could (theoretically) be repeated multiple times. This, however, is likely only if, for instance, the SPD were to change its mind and opt for another grand coalition. | In consequence, a 14-day deadline kicks in during which this vote could (theoretically) be repeated multiple times. This, however, is likely only if, for instance, the SPD were to change its mind and opt for another grand coalition. |
| In the meantime, Merkel and her grand coalition cabinet continue to serve as caretakers. Hopes in the UK for a political deal with Berlin on Brexit were unrealistic before but have now become even less likely. The EU’s negotiation guidelines, including the need to pay a sufficient amount of money in the run-up to the December European Council, are still the basis for any deal, now more than ever. Eurozone build-out jointly with France remains a task for the next government, but conversations will remain on ice until the deadlock in Berlin has been broken. | In the meantime, Merkel and her grand coalition cabinet continue to serve as caretakers. Hopes in the UK for a political deal with Berlin on Brexit were unrealistic before but have now become even less likely. The EU’s negotiation guidelines, including the need to pay a sufficient amount of money in the run-up to the December European Council, are still the basis for any deal, now more than ever. Eurozone build-out jointly with France remains a task for the next government, but conversations will remain on ice until the deadlock in Berlin has been broken. |
| How to dissolve parliament and hold snap elections | How to dissolve parliament and hold snap elections |
| Absent such developments, however, another round of voting must be held within 14 days of the first round. This time, a plurality of votes is sufficient for a candidate to be elected chancellor (i.e., the candidate who receives the largest number of votes is elected). It is then up to the federal president to decide, within seven days, whether to appoint the elected candidate on the basis of this plurality vote. The result would be a minority government. The alternative option for the president is to dissolve the Bundestag and call early elections. These would have to be held within 60 days of the dissolution of parliament. | Absent such developments, however, another round of voting must be held within 14 days of the first round. This time, a plurality of votes is sufficient for a candidate to be elected chancellor (i.e., the candidate who receives the largest number of votes is elected). It is then up to the federal president to decide, within seven days, whether to appoint the elected candidate on the basis of this plurality vote. The result would be a minority government. The alternative option for the president is to dissolve the Bundestag and call early elections. These would have to be held within 60 days of the dissolution of parliament. |
| As a result, mid-February would be the earliest possible date for snap polls. The exact timeframe, however, depends on how quickly Steinmeier proceeds in the coming days towards proposing a candidate for chancellor to the Bundestag. | As a result, mid-February would be the earliest possible date for snap polls. The exact timeframe, however, depends on how quickly Steinmeier proceeds in the coming days towards proposing a candidate for chancellor to the Bundestag. |
| Here’s a photo of German Chancellor Angela Merkel meeting with President Frank-Walter Steinmeier today. | Here’s a photo of German Chancellor Angela Merkel meeting with President Frank-Walter Steinmeier today. |
| Over in Brussels, European Central Bank president Mario Draghi is testifying to MEPs. | Over in Brussels, European Central Bank president Mario Draghi is testifying to MEPs. |
| Draghi hasn’t mentioned the situation in Germany in his opening statement. Instead, he argues that Europe’s economic recovery is solid and broad-based, but also warns the euro area must be strengthened to help it deal with upcoming risks. | Draghi hasn’t mentioned the situation in Germany in his opening statement. Instead, he argues that Europe’s economic recovery is solid and broad-based, but also warns the euro area must be strengthened to help it deal with upcoming risks. |
| As Draghi puts it: | As Draghi puts it: |
| The EU Treaties gave the ECB the primary objective of maintaining price stability in the euro area as a whole. This is the best contribution we can make to the welfare of our fellow citizens. | The EU Treaties gave the ECB the primary objective of maintaining price stability in the euro area as a whole. This is the best contribution we can make to the welfare of our fellow citizens. |
| Ensuring price stability is a precondition for the euro area economy to achieve a balanced growth path that can be sustained in the long run. But this is not the only condition. | Ensuring price stability is a precondition for the euro area economy to achieve a balanced growth path that can be sustained in the long run. But this is not the only condition. |
| Achieving a balanced growth path also requires to strengthen the euro area ability to deal with risks, whenever they will materialise. The current economic outlook provides a unique opportunity to reduce the likelihood of severe shocks by strengthening the economic structures of Member States, with policy actions both on the fiscal and structural side. | Achieving a balanced growth path also requires to strengthen the euro area ability to deal with risks, whenever they will materialise. The current economic outlook provides a unique opportunity to reduce the likelihood of severe shocks by strengthening the economic structures of Member States, with policy actions both on the fiscal and structural side. |
| At the same time, boosting the resilience of the Economic and Monetary Union (EMU) implies also reinforcing our common institutional set-up so as to prevent and manage shocks. | At the same time, boosting the resilience of the Economic and Monetary Union (EMU) implies also reinforcing our common institutional set-up so as to prevent and manage shocks. |
| The key part of Frank-Walter Steinmeier’s statement came when he urged all political parties to consider helping to form a new government. | The key part of Frank-Walter Steinmeier’s statement came when he urged all political parties to consider helping to form a new government. |
| The German president said: | The German president said: |
| “All political parties elected to the German parliament have an obligation to the common interest to serve our country. | “All political parties elected to the German parliament have an obligation to the common interest to serve our country. |
| “I expect from all a readiness to talk to make agreeing a government possible in the near future.” | “I expect from all a readiness to talk to make agreeing a government possible in the near future.” |
| Newsflash: German president Frank-Walter Steinmeier is delivering a statement in Berlin now, following his meeting with Angela Merkel. | Newsflash: German president Frank-Walter Steinmeier is delivering a statement in Berlin now, following his meeting with Angela Merkel. |
| Steinmeier says that Germany faces an unprecedented situation, following the breakdown in coalition talks between the CDU/CSU, the FDP and the Greens. | Steinmeier says that Germany faces an unprecedented situation, following the breakdown in coalition talks between the CDU/CSU, the FDP and the Greens. |
| He says he expects all parties to be prepared to help find a solution. He’ll be speaking to the leaders of Germany’s political parties, and the heads of other institutions, to see if a government can be formed. | He says he expects all parties to be prepared to help find a solution. He’ll be speaking to the leaders of Germany’s political parties, and the heads of other institutions, to see if a government can be formed. |
| Steinmeier also reminds Germany that the world is watching, saying it is clear that European nations would be concerned if the region’s largest economy can’t form a stable government. | Steinmeier also reminds Germany that the world is watching, saying it is clear that European nations would be concerned if the region’s largest economy can’t form a stable government. |
| And that’s it - he doesn’t take any questions. | And that’s it - he doesn’t take any questions. |
| No surprise that Steinmeier is calling for cooperation -calling new elections is a prolonged complicated process | No surprise that Steinmeier is calling for cooperation -calling new elections is a prolonged complicated process |
| Federal President #Steinmeier speaks of situation without precedent, responsibility for the country goes beyond parties' self-interest, expects readiness for talks from all political parties, will talk to leaders of all political parties & constitutional bodies #Germany #Art63GG pic.twitter.com/2yfzZAZ4qR | Federal President #Steinmeier speaks of situation without precedent, responsibility for the country goes beyond parties' self-interest, expects readiness for talks from all political parties, will talk to leaders of all political parties & constitutional bodies #Germany #Art63GG pic.twitter.com/2yfzZAZ4qR |
| German President Steinmeier calls on coalition parties to “reconsider”. All options likely to be explored to avoid new elections. | German President Steinmeier calls on coalition parties to “reconsider”. All options likely to be explored to avoid new elections. |
| Germany’s Social Democrats, who came second in September’s election, are sticking to their policy of not joining a grand coalition with Angela Merkel. | Germany’s Social Democrats, who came second in September’s election, are sticking to their policy of not joining a grand coalition with Angela Merkel. |
| That’s according to a party document seen by Reuters, which reports: | That’s according to a party document seen by Reuters, which reports: |
| “Given the results of the Sept. 24 election, we are not available for entry into a grand coalition,” read a SPD paper due to be discussed by party leaders that was obtained by Reuters. | “Given the results of the Sept. 24 election, we are not available for entry into a grand coalition,” read a SPD paper due to be discussed by party leaders that was obtained by Reuters. |
| “We are not afraid of new elections.” | “We are not afraid of new elections.” |
| SPD leadership decides unanimously against new coalition with Merkel's CDU - some in the party disagree, but unlikely this will change much. https://t.co/eNPeoe7DJc | SPD leadership decides unanimously against new coalition with Merkel's CDU - some in the party disagree, but unlikely this will change much. https://t.co/eNPeoe7DJc |
| European stock markets have now recovered their earlier losses as traders await news from the Merkel-Steinmeier talks. | European stock markets have now recovered their earlier losses as traders await news from the Merkel-Steinmeier talks. |
| Political analyst Nina Schick suggests the political uncertainty could last for months, though, meaning traders will remain nervous. | Political analyst Nina Schick suggests the political uncertainty could last for months, though, meaning traders will remain nervous. |
| Merkel has finished her talk w/ Gerrman President Frank-Walter Steinmeier (who will call new elections if it comes to that.) Minister President of NRW, Armin Laschet, says that CDU will continue to support Merkel. (Whatever the outcome, she's weakened tremendously.) | Merkel has finished her talk w/ Gerrman President Frank-Walter Steinmeier (who will call new elections if it comes to that.) Minister President of NRW, Armin Laschet, says that CDU will continue to support Merkel. (Whatever the outcome, she's weakened tremendously.) |
| The price that @SPD will likely demand in return for another GroKo is that Merkel goes. That would be a non-starter for CDU (right now.) So it's minority gov't or new elections. Unlikely that we will have new German gov't until well into 2018. Bad news for Brexit. | The price that @SPD will likely demand in return for another GroKo is that Merkel goes. That would be a non-starter for CDU (right now.) So it's minority gov't or new elections. Unlikely that we will have new German gov't until well into 2018. Bad news for Brexit. |
| Here’s our latest report from Berlin. | Here’s our latest report from Berlin. |