Merkel and her coalition ‘won’ the German elections held in late September.  The Alternative for German party did not attain the 5% level, but while they failed to gain seats in the Bundestag, their achievement of winning 4.7% of the vote was seen as a victory of sorts.

Merkel and her allies failed to win a majority of seats, falling short by 5 seats.  This means that they will need to form a coalition with either the SPD or the Greens (it seems that nobody wants anything to do with the Left Party).  However, it seems that nobody is in a rush to join Merkel’s coalition as that has usually resulted in disastrous election results for the minority party.  The end result is that some do not expect a government to be formed until early next year.

Any market volatility that arises this fall may become exacerbated should the lack of a German government cause even greater European inaction.

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