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State Street Comments on the German General Election Results

In reaction to the German general election results, Timothy Graf, head of macro strategy EMEA at State Street Global Markets; and Elliot Hentov, head of policy and research – official institutions EMEA at State Street Global Advisors, offer their views.

Graf comments, “This election was always going to be most interesting during the coalition-building process, after the ballots were counted. With that in mind, this weekend’s results offer the most intrigue for the coming months. In forcing German Chancellor, Angela Merkel to cobble together a coalition with at least two other parties, the potential for headline risk is at its highest. While the actual market impact is likely to be minimal over the medium-term, this weekend’s result does introduce more risk into European political proceedings than previously estimated.”

Hentov comments, “Germany has become less predictable as of tonight so markets should take note. The success of the populist far-right Alternative for Germany (AfD) is rippling through German politics by removing the conventional coalition options for Merkel. She now has to experiment with the first three-party federal coalition (not counting Bavarian sister party, Christian Social Union (CSU)) in Germany’s history. By simple arithmetic, this requires more negotiation and coordination. Moreover, the political gaps between the parties remain large and both The Greens (Alliance 90) and the Free Democrat Party (FDP) have every incentive to be tough partners. Therefore it is not expected any government formation would proceed quickly or exhibit the usual German stability. Tonight was as much a bad night for Merkel as for French President Macron."

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