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20 Sep 2013
Merkel could be forced into grand coalition after Sunday elections
FXstreet.com (Barcelona) - The highly anticipated federal elections in Germany will take place this Sunday and polls point to a victory of Angela Merkel's centre-right party. Still, a question mark hangs over the composition of the coalition government, with predictions ranging from the continuation of the Christian Democratic Union (CDU), Christian Social Union of Bavaria (CSU) and Free Democrats (FDP) coalition to the formation of a grand coalition with the opposition party Social Democrats (SPD).
According to the latest results of the opinion poll conducted by Forschungsgruppe Wahlen, Merkel's conservative party has a 40% support, while it's current coalition partner, the center-left Free Democrats is backed by 5.5%. SPD was put on 27% and their Green allies on 9%.
The Alternative für Deutschland (AfD) eurosceptic party, which calls for pushing the distressed peripheral countries out of the euro area, is seen gaining support at 4%. If it received a 5% backing, allowing it to enter parliament, Merkel would most probably be forced to form a grand coalition with the SDP. Another factor which might favor such an outcome is a high voter turnout, due to the fact that historically, it “tended to provide a boost to the Social Democrats whereas the FDP and the Greens have traditionally lost shares if and when turnout rose,” as Laurence Boone and Sphia Salim from Bank of America Merrill Lynch explain.
A potential shift in the composition of the government is not expected to change Germany's EU policy considerably, although some fear that AfD's representation in parliament could affect the way Eurozone issues are handles, such as granting additional rescue funds to Greece.
Furthermore, Bank of America Merrill Lynch analysts believe that forming a grand coalition with the SPD could result in the party urging “the implementation of the controversial financial transaction tax, possibly slowing the negotiations process and upsetting market sentiment rather than living up to expectations of promoting a shift in the German government’s stance toward Europe.”
However, according to the Danske team of analysts: “An uncertain outcome may result in a slightly negative market sentiment but keep in mind that no matter what coalition eventually will be formed, Germany will remain pro-euro.”
According to the latest results of the opinion poll conducted by Forschungsgruppe Wahlen, Merkel's conservative party has a 40% support, while it's current coalition partner, the center-left Free Democrats is backed by 5.5%. SPD was put on 27% and their Green allies on 9%.
The Alternative für Deutschland (AfD) eurosceptic party, which calls for pushing the distressed peripheral countries out of the euro area, is seen gaining support at 4%. If it received a 5% backing, allowing it to enter parliament, Merkel would most probably be forced to form a grand coalition with the SDP. Another factor which might favor such an outcome is a high voter turnout, due to the fact that historically, it “tended to provide a boost to the Social Democrats whereas the FDP and the Greens have traditionally lost shares if and when turnout rose,” as Laurence Boone and Sphia Salim from Bank of America Merrill Lynch explain.
A potential shift in the composition of the government is not expected to change Germany's EU policy considerably, although some fear that AfD's representation in parliament could affect the way Eurozone issues are handles, such as granting additional rescue funds to Greece.
Furthermore, Bank of America Merrill Lynch analysts believe that forming a grand coalition with the SPD could result in the party urging “the implementation of the controversial financial transaction tax, possibly slowing the negotiations process and upsetting market sentiment rather than living up to expectations of promoting a shift in the German government’s stance toward Europe.”
However, according to the Danske team of analysts: “An uncertain outcome may result in a slightly negative market sentiment but keep in mind that no matter what coalition eventually will be formed, Germany will remain pro-euro.”