Merkel under pressure as German coalition talks collapse
Four weeks of discussions have led to a deadlock
- Merkel said she would meet the president of the country on Monday
- European markets and the euro were stunted by the news
Negotiations to form a German government have collapsed after the withdrawal of the liberal FDP party from three-party coalition talks.
The withdrawal leaves chancellor Angela Merkel facing one of her biggest domestic challenges during her 12 years as leader of the country.
September’s election saw no party gain an overall majority, with Merkel’s CDU/CSU bloc gaining the most seats but well short of the number required to govern alone.
Four weeks of discussions have led to a deadlock between the CDU/CSU alliance, the FDP and the Greens. New elections may have to be called in order to break the stalemate.
Merkel said she would meet the president of the country on Monday in order to discuss how to proceed with the aim of forming a government. Last weekend, President Frank-Walter Steinmeier stated that he would prefer to avoid new elections.
"As chancellor, I will do everything to ensure that this country is well managed in the difficult weeks to come," Merkel said.
FDP leader Christian Lindner and other party members departed the talks late on Sunday night, as he said the other parties showed little attempt to compromise.
"Today there was no progress - rather there were setbacks because targeted compromises were questioned," Lindner said.
Reports indicated that the talks fell apart owing mainly to disagreements over immigration and tax, with Lindner adding: "It is better not to be in power than pursuing the wrong goals.”
Martin Schulz, leader of the SDP, the second largest party following the recent election, previously stated already that he interpreted the election outcome as a vote against forming another Grand Coalition as his party had with the CDU/CSU and so will not be participating in coalition talks to form such a government.
European markets and the euro were stunted by the news on Monday morning, with Accendo Markets’ Henry Croft asserting that the fallout could spread to London stocks at the start of the week.
Croft said: “Calls for a negative start to the week come after German coalition negotiations failed late last night, sharply reducing the prospect of Angela Merkel beginning her fourth term as Chancellor. The Euro and Germany’s DAX are both trading lower as the prospect of another election only two months after the last vote becomes a real possibility.
“The dent in European market sentiment and the negative FX impact of a lower Euro and stronger pound therefore see the UK’s blue chip index called lower.”
Barclays said the collapse of talks left four options: a CDU-Greens minority government; a return of the FDP; another Grand coalition; or new elections.
"Given the progress made in the Jamaica coalition talks, the Greens could form a minority government with the CDU, which would be unprecedented in post WWII German political history. This would require the support of other parties in the Bundestag on key votes, and hence make the approval of significant reforms, including on the euro area, difficult," the bank's economist Tomasz Wieladek said in a note on Monday, adding there was also a chance that the FDP could return to the coalition talks in a few days time.