How to Profit From Resignation of German President
The government of German Chancellor Angela Merkel was delivered a blow on Friday when the President of Germany resigned over allegations of corruption. Former German President Christian Wulff's role was largely a ceremonial one but he was expected to act as the moral leader of the German government, so allegations of corruption were particularly damaging to his chances of holding onto the post.
Christian Wulff's political career began to unravel towards the end of last year when news was about to break that he had accepted a sizable low interest rate loan from a wealthy businessman before he became President of Germany. President Wulff did himself no favors when he threatened one of Germany's most important newspapers, Bild, not to publish details of his personal financial dealings. Bild went ahead and published the story, which put Wulff under greater scrutiny.
As the media and German officials began to take a closer look into Wulff's financial dealings, more embarrassing revelations over allegedly improper dealings between Wulff and businessmen began to emerge. Although he was once widely admired by the German people, Wulff became the subject of ridicule in the media for his perceived evasiveness in dealing with the allegations.
The end came soon after it was revealed that state prosecutors were attempting to have Wulff's immunity as President of Germany removed so that they could proceed with an investigation of allegations that he had illegally benefited from his relationships with wealthy businessmen.
Mr. Wulff's resignation is particularly embarrassing to Chancellor Merkel because he is the second President appointed by Merkel to resign under controversial circumstances in the last two years. The matter is serious enough that Chancellor Merkel had to cancel a scheduled trip to Italy to meet with Italian Prime Minister Mario Monti for talks on the euro zone's ongoing financial crisis.
Although her approval rating among German voters is quite high, Chancellor Merkel only holds a slim majority in the Federal Assembly, he government body that must choose a new President within the next month. This time around, Merkel will most likely have to give more consideration to the views of the opposition when choosing a new German President.
There are a number of people who could become the next German President and Finance Minister Wolfgang Schaeuble is one of them. Merkel has a history of pushing aside powerful potential rivals into ceremonial or European Union posts but the market might not react well to having such an important player in the ongoing financial crisis relieved of his duties.
However Chancellor Merkel chooses to deal with the fallout from the resignation of another one of her Presidents, she must act quickly so that her focus is back on averting a financial meltdown in Europe.
Traders who believe that because his post was primarily ceremonial, the resignation of the German President won't have much affect on the market might want to consider the following trades:
- An ETF like the CurrencyShares Euro Trust (NYSE: FXE) could move higher if Merkel is able to quickly put the scandal behind her and focus on fixing the euro zone's financial problems.
Traders who believe that Wulff's resignation comes at the worst possible time may consider alternative positions:
- The ProShares UltraShort Euro (NYSE: EUO) and the CurrencyShares Swiss Franc Trust (NYSE: FXF) ETFs could move higher if Germany's internal political problems become to big of a distraction during a time of important talks over how to keep the euro zone intact. Investors could flee the euro for safe haven currencies like the Swiss franc if Germany isn't able to broker a deal with Greece and prevent a financial catastrophe.
(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.