The euro falls after German coalition talks fail

The euro was down 0.6% against the yen and slipped 0.5% against the US dollar

Exploratory talks to form Germany’s next coalition government collapsed shortly before midnight on Sunday when the pro-business Free Democratic Party (FDP) walked out of marathon negotiations.

“The four discussion partners have no common vision for modernisation of the country or common basis of trust,” the FDP leader, Christian Lindner, announced after the four parties involved missed several self-prescribed deadlines to resolve differences on migration and energy policy.

“It is better not to govern than to govern badly.”

The euro fell in Asian trade overnight, as a result of the uncertainty in Europe’s powerhouse nation.

Against the yen, the euro was down 0.6% on the day to a two-month low and slipped 0.5% against the US dollar. It was down 0.43% against the pound at €1.125.

Chancellor Angela Merkel has been attempting to forge a coalition between her Christian Democratic Union (CDU), its Bavarian sister party the Christian Social Union (CSU), the pro-business FDP and the Green party, after federal elections, which took place at thye end of September.

Announcing the collapse of talks as an “almost historic day”, Angela Merkel insisted that the parties would have been capable of reaching a compromise even in spite of their polarised views on migrations, and described the FDP’s walk-out as “regrettable”.

A so-called “Jamaica” coalition – so nicknamed because the parties’ traditional colours mirror those of the Jamaican flag – represents new ground even for Germany’s experienced leader and has only previously been tested at regional level.

Migration emerged as a grave political issue in Germany, following the refugee crisis, when 1.2 million migrants entered the country in 2015 and 2016.

The backlash against Merkel’s decision to keep open Germany’s borders has resulted in a far-right party, the anti-refugee Alternative fur Deutschland, entering the German parliament for the first time in over 50 years.

In the coalition talks in Berlin, the CDU, the CSU and the FDP have, at times, worked to outdo each other on calling for a harder line on migration controls.

According to reports in German media, the Green party suggested a compromise over the weekend whereby they would agree to limit Germany’s annual intake of migrants to a benchmark figure of 200,000, so long as other parties did not rule out allowing migrants with “subsidiary protection” status to be reunited with their families.

The parties have struggled to find a common ground on climate change, with the Greens calling for a reduction in coal-generated power of eight to ten gigawatts, while its potential coalition partners have expressed concerns about job losses in the energy and manufacturing sectors.

At the start of the weekend, the FDP leader, Christian Lindner, announced a deadline for the exploratory talks. “If we don’t work it out by 6pm on Sunday, the whole thing is dead,” his deputy, Wolfgang Kubicki, said.

The talks, however, went on past that deadline.

With talks now seemingly over, Merkel could seek to form a minority government, either with the FDP or the Greens, and gather support from other parties on individual policy votes.

The Social Democrat leader, Martin Schulz, whose party has played junior partner to Merkel in the German government for the past four years, ruled out the possibility of another grand coalition under his leadership. “The voter has rejected the grand coalition,” Schulz said at a party conference in Nuremberg on Sunday.

Once all other options are tried, Frank-Walter Steinmeier, German president, could dissolve the current parliament and call new elections. 

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