Rise of populism in Germany causes euro drop
Mihir Kapadia, CEO and Founder, Sun Global Investments
While Angela Merkel’s victory was expected and priced in by the markets, the fact of all the major parties suffering historic losses was a surprise. immediate tt. With the right-wing nationalists Alternative for Germany (AfD) and the liberal Free Democratic party (FDP) gaining significant ground, Merkel’s Christian Democratic Union (CDU) is likely to be pushed to a coalition with the market-friendly Free Democrats and the Greens, but the negotiations to get there could take weeks.
With the evident rise in right wing populism in Germany, the Euro slipped against its major peers, falling by 0.5 per cent against the US dollar to start the new trading week just under $1.19, before recovering slightly. Though Merkel has managed to win a fourth term, the election has perhaps been a wakeup call to everyone who felt right wing populism has died down in Europe after Macron’s triumphant victory in France. However markets seldom worry too much about the smaller opposition parties where the ruling collation is stable. Therefore this may be a less important issue than the headlines are implying.