German Chancellor Angela Merkel said today that she would prefer new elections instead of heading a minority government. She made her statement after negotiations for a three-party coalition failed last night. The euro marked the news negatively, but no mass sales came as many analysts predicted.
"Germany needs a stable government that does not want a majority for any solution," Merkel said.
Asking whether a new "big coalition" with the German Social Democratic Party might be possible, she said she would wait to see the Social Democrats' response after their talks with President Frank Steinmeier on Wednesday. However, most market participants believe that such a coalition can not have, or if it exists, its life will be too short.
What does this mean for the euro and European stocks?
If Germany goes back to elections, it will have a negative impact on the euro and German stocks. Given the high probability of new elections in Germany, we expect the pressure on European stocks to pick up and EUR to deepen the correction to around 1.1556 against the dollar.
Source: Reuters
Jr Trader Petar Milanov
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