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Merkel Victorious, But A New Coalition Could Be In Sight

Merkel Victorious, But A New Coalition Could Be In Sight

The euro held on to gains and remained above $1.35 on Monday morning after German elections resulted in current Chancellor Angela Merkel being re-elected.

However, it appeared that Merkel won't have an absolute majority within parliament, so her third term isn't likely to be a walk in the park.

According to Reuters, partial results showed that Merkel's Christian Democratic Union and Bavarian Christian Social Union earned 42.5 percent of the vote, the strongest score since 1990. Her coalition party, the Free Democratic Party, did not earn a seat in the Bundestag for the first time in the post-war era. The Social Democrats came in at 26.4 percent and the radical Alternative For Germany nearly had the 5 percent needed to earn a seat at 4.9 percent.

Related: Market Primer: Monday, September 23: Merkel Victorious, Coalition Was Not So Lucky

The Social Democratic party has expressed resistance to forming a coalition with Merkel due to their vastly different views. But the two could put their differences aside and partner for the second time in the past 10 years.

A decision on the nation's government could take up to two months, but once Germany's government has been decided, the bloc will likely return to the issue of Greece's need for another bailout and plans for a unified banking system. A coalition that includes the Social Democrats will likely be more open to the region's baking union and could help change Germany's stance on debt mutualization across the eurozone.

Moving forward, data this week is expected to show that eurozone's purchasing managers index has risen higher above the 50 point mark that indicates growth. If forecasts are correct, the data will add to growing confidence in the region's recovery.


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