German federal election will take place on Sunday 26th September. Germany is set for a major political shift as Angela Merkel will not take part in the election after almost 16 years of holding the post of Chancellor. Germany is a powerhouse. It has the highest GDP and is Europe’s largest economy, followed by France. Any changes could have a significant impact on Europe.
Based on recent polls, there are 5 likely three-party collation scenarios. Depending on who is appointed, there are possible conflicts that could occur post-election that make coalition and policy predictions particularly hard at this point. However, we may not know the most likely outcome even after the results have been announced. The process may drag on, as the coalition would require three participating forces to bridge gaps and agree on the common proposition.
The most likely scenario is that the new German government will include three parties. With both the CDU/CSU and SPD ruling out a potential coalition with the AfD, a combination of five parties could create a coalition. Based on the recent opinion polls, there are five likely three-party coalition scenarios, all of which have been anointed names by the media corresponding to the combination of colours of the political parties:
Polling indicates that the SPD is likely to come out on top, followed by the CDU/CSU. It’s hard to predict the exact impact, given the difficulty in assessing what’s currently priced-in, the variety of possible outcomes, and a high likelihood that the process may not be immediately clear and could drag on. A potential three-party representation would need to agree on the common blueprint, which could prove difficult and might take weeks if not months, delaying the creation of a new government.
There is often a lot of volatility in the exchange rates around elections. We saw it last year in the US elections with Trump v Biden. Will there be a new leader? Will there be a change in key members of staff? What are their policies? What changes will be made? This can cause significant shifts in the exchange before and after the elections, and it is important to be ready to take advantage of any exchange rate movements.
It is free to open an account with Spartan FX, and there is no obligation to trade. Speak to one of the team today and find out how the German elections could affect your transfers.