Germany’s DAX index was up by as much as 0.25% on Monday morning, after an initial fall prompted by the failure of Angela Merkel’s Christian Democrats to form a coalition with the Free Democrats and Greens.
The Euro also was unchanged after an initial fall. The absence of a German government does not seem to bother the markets, which probably means that investors weren’t expecting any changes of note in German economic policy to begin with. There are several possible outcomes. One would be a minority government with limited scope to pass legislation; another (and probably the most reasonable) would be to return to a Grand Coalition between the Christian Democrats and Social Democrats, namely the state of affairs before the election.
After leading the socialists to their worst election results in the postwar period, SPD leader Martin Schulz averred that he would remain in opposition. Schulz might have to step aside for another Social Democrat ready to form a governing coalition.