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. http://www.spiegel.de/international/germany/press-review-and-news-roundup-on-german-coalition-talks-a-925327.html
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.