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Political fragmentation means Jamaica coalition is the only option

Summary:
The German election proved less predictable than some thought. Coalition talks are likely to be long and difficult, complicating moves to deepen European integration.Angela Merkel looks set to secure a fourth term as Chancellor amid growing fragmentation and a surge in far-right support. The only arithmetically possible options are another Grand Coalition (ruled out by the SPD) and a Jamaica coalition between the CDU-CSU, FDP and the Greens (very difficult due to diverging positions on a wide range of issues).Negotiations are likely to prove long and difficult for a Jamaica coalition to be agreed. Alternatively, a minority CDU/CSU government cannot be ruled out at this stage. Either way, uncertainty will prevail as an unstable government would face the risk of new elections.Although a

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The German election proved less predictable than some thought. Coalition talks are likely to be long and difficult, complicating moves to deepen European integration.

Political fragmentation means Jamaica coalition is the only option

Angela Merkel looks set to secure a fourth term as Chancellor amid growing fragmentation and a surge in far-right support. The only arithmetically possible options are another Grand Coalition (ruled out by the SPD) and a Jamaica coalition between the CDU-CSU, FDP and the Greens (very difficult due to diverging positions on a wide range of issues).

Negotiations are likely to prove long and difficult for a Jamaica coalition to be agreed. Alternatively, a minority CDU/CSU government cannot be ruled out at this stage. Either way, uncertainty will prevail as an unstable government would face the risk of new elections.

Although a quantum leap in terms of euro area integration was always unlikely, in our view, the presence of the FDP in any German coalition will certainly complicate Merkel and Macron’s task in coming months. The French president is expected to make new propositions in a speech on Europe this week.

Frederik Ducrozet
Mr. Frederik Ducrozet is a Senior Econoist at Banque Pictet & Cie SA, Research Division. Prior to this, he served as Senior Eurozone Economist at Credit Agricole Corporate and Investment Bank, Research Division from June 2006 till September 2015. He joined Crédit Agricole SA in 2005. Mr. Ducrozet contributed to the various publications of the research department, with a special focus on macroeconomic developments in Eurozone countries, including on the outlook for fiscal policy and the ECB’s monetary policy. Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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