Elections Uber Alles (Part Zwei)

Maybe they’ll care now?

On Sunday Germany’s electorate gave Angela Merkel a stunning victory, increasing her party’s share of the vote from 33.8% to 41.5%. It’s the best result for the Christian Democrats since 1990, when Helmut Kohl won a third term. In fact, she almost won an outright majority in the Bundesrat, Germany’s lower house. Now she has to form a coalition.

The CDU’s current partner, however, is not available. The Free Democrats’ share fell from 14.6% four years ago to 4.7% now—not enough to send delegates to Parliament. It’s a painful comedown for a party that has frequently played the role of kingmaker in German politics. Because their libertarian philosophy is adaptable, they have been a junior partner in several government coalitions.

Merkel’s most obvious associate is now the Social Democratic Party, which also picked up seats. This election saw the center-left and center-right parties gain seats, while the more extreme parties lost them. So a national unity government seems possible.

Such a combination would provide strong support for the Euro. While there is still considerable skepticism regarding bailouts—the anti-Euro party gained share, but no seats—a CDU-SPD government would have enough votes to amend Germany’s constitution, if necessary, to sustain the common currency.

The Euro has always been a political project. Germany’s voters just gave Merkel—one of the currency’s most powerful sponsors—the political strength she needs to keep the project alive.

Douglas R. Tengdin, CFA

Chief Investment Officer

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