A political crisis in Germany. If there was 1 scenario that political and economic analysts thought was unlikely to happen, it would be this scenario. Hence the news of Germany's failure to form a new government is hitting those groups like a bomb.
After the elections at the end of September, it was clear that the marriage between Angela Merkel's CDU/CSU and the SPD is over. The SPD lost significantly and drew its conclusion: the party will continue in opposition. Merkel's party also lost some votes, but nevertheless emerged as the largest. That is why Merkel can take the lead in forming a new government.
It soon became apparent that only 1 coalition is possible, namely between the CDU/CSU (middle), the Greens (left) and the FDP (right). Since the colors of those parties are the same as the flag of exotic Jamaica, the media quickly renamed the new coalition as the Jamaica Coalition.
The conversations did not go smoothly at all. That is no surprise, given the position that parties occupy in the political spectrum. While the FDP, for example, had little interest in pumping even more money and time into saving the euro, the Greens were very pro-euro and in favor of further integration. The CDU was always caught in the middle.
Shock from Berlin
Yet almost everyone assumed that the three parties would make compromises. However, earlier this week the cold shower came: the FDP announced that it was leaving the talks. "It made no sense," the party said.
It was a shock. Since the start of the euro crisis in 2010 and the global economic crisis in 2008, the country has not only been the most economically stable country in the eurozone, but it has also been a beacon of stability politically. Merkel has been at the helm since 2005, making her the longest-serving leader in the most important EU countries. For comparison, France has had 2005 presidents since 4. Italy has now started its seventh prime minister.
The fact that Merkel has led her country for so long also means that she is in fact the leader of the EU. Something she would never acknowledge in public. This is because Germany is quite sensitive within the EU (among other EU countries).
Exit Merkel?
Now that talks for the new German government have failed and Merkel is heading for new elections, there are open doubts about whether she can continue as chancellor.
That is actually nothing more than saying that an extra dimension has been added to the high political uncertainty in the eurozone and the EU. If Merkel quits, who will be the next German leader? Will her successor, like her, do everything to save the euro? What will the new elections lead to? And which parties will form the new German government?
Even if the SPD reverses its decision to be in opposition and joins forces with Merkel again, that will not mean that everything will remain the same. After all, Merkel's position has been permanently damaged and the SPD will also demand more influence and control, if that party wants to govern at all.
An alternative is for Merkel to form a minority government. That doesn't seem to be happening. First of all, because Merkel has indicated that she has little interest in this. However, even if she were to choose that option, it is clear that political stability in Germany (with all its positive effects on the eurozone) will disappear for the time being.
Other countries smell blood
It appears that Germany will not have a new government until 2018, but what political signature it will have and how stable it will be is not yet certain. In the political-economic playing field of the eurozone, this means that there is more room for assertiveness from other countries. It would not surprise me if countries, such as Italy, use this German impasse to speak out against the EU, something that many countries will undoubtedly join.
For French President Macron, this could mean that he will be given the leadership position in the eurozone and the EU. However awkward or unexpected that would be, it is something that France had hoped for for a long time (and that hope may have disappeared long ago). After all, the position and strength of Merkel and Germany were beyond dispute.
Important decisions will be taken in the coming months on the reform of the eurozone. This includes various proposals to establish a European Monetary Fund, its own government and budget or an expansion of financing in the EU. But this also includes choosing a new boss for the European Central Bank (ECB). The current president, Mario Draghi, must leave at the end of 2019 and his successor will be selected in the course of 2018.
Until recently, there was little uncertainty about these matters: Germany's position and wishes were known; which meant, among other things, that Draghi's successor would be a German. With all its consequences for the ECB's policy. All that is now in the past and everything that seemed almost certain has become uncertain.
How this will proceed, and what economic and financial consequences there will be for the eurozone (interest rates and value of the euro), will become clearer in the near future. The chance that nothing will be the same in the monetary union seems to be very high. All we can do is monitor the situation.