The Fall of Merkel’s Party (and the Euro)

Over the weekend, the results of the Baden-Watternberg (a key state in Germany) elections showed that Chancellor Angela Merkel’s party, the Christian Democratic Union (CDU), failed to win the majority and only ended up with only 39% of the popular votes.

The Green Party and the Social Democrats, the opposing parties, respectively garnered 24.4% and 23% of the votes. Individually, the opposite parties were still below the CDU, but the Social Democrats said they will form an alliance with the Green Party to get the majority. Add 24.4% and 23% together, and you have a winner!

The CDU has been ruling the very wealthy Baden-Watternberg state since 1953, so the change will be a HUGE and HISTORIC political shift.

Even if the CDU managed to give Germany a stronger economy, a higher level of employment, and low crime rates, it looks like German voters got turned off by the crisis management mishaps of the current government.

For one, Merkel’s snap decision regarding Germany’s nuclear reactors didn’t sit too well with the public. Just a few months ago, she decided to spend boatloads of euros to extend the lifespan of several nuclear reactors in Germany.

Then when Japan started to undergo a nuclear crisis after the March 11 earthquake and tsunami, Merkel got cold feet and put HER OWN DECISION under review. She even ordered the temporary shutdown of seven nuclear reactors as the ghosts of Chernobyl’s past started haunting Germany.

Many were also displeased with her shifting stance on euro zone bailouts. In her speeches, she expressed disdain for bailouts but, during the European Union summit, she agreed to mechanisms that would facilitate such bailouts.

Because of that, German voters got worried that (incoming Justin Beiber reference, look away now if you want to spare yourself!) she can’t make up her mind, mind, mind, mind, mind and might end up wasting Germany’s time, time, time, time, time. Yipes, this is the nasty aftermath of watching Never Say Never with my grandkids!

Aside from that, some voters thought her decision to abstain in a U.N. vote to take military action in Libya was an act of cowardice. Tsk tsk, that doesn’t look too good for the world’s fourth largest economy, does it?

If you’re looking for a gauge of how big a deal Merkel’s loss is, then look no further than EUR/USD!

EUR/USD 1-hour chart showing gap down

The fact that the pair continued to fall shouldn’t have come as a big surprise given that it had just come from a large drop last Friday. But who would’ve guessed that it would start this week off with a whopping 63-pip gap down?!

Keep in mind that the market’s sharp euro sell-off doesn’t necessarily mean that traders want Merkel to stay. But it is a good measure of the degree of political uncertainty that Germany is under.

As if Portugal’s debt woes weren’t a big enough headache, now the euro has to contend with Germany’s political issues. With so many problems hanging above it, I wouldn’t be surprised to see the euro end up the same way as Merkel–with a big, painful loss.

  • donkeykong

    i can’t believe justin bieber has a movie out.

  • donkeykong

    i can’t believe justin bieber has a movie out.