LONDON (Reuters) – German conservative leader Friedrich Merz failed to garner the parliamentary majority needed to become chancellor on Tuesday in an unexpected setback for his new coalition with the centre-left Social Democrats.
German blue chip shares extended their fall slightly on the news and was last down over 1%, while the broader European share index was down around 0.5%.
Euro zone bond yields edged down on the news with two-year bond yields last down around 2 basis points on the day at 1.75%.
COMMENTS:
CARSTEN BRZESKI, GLOBAL HEAD OF MACRO RESEARCH, ING, FRANKFURT:
“Well, it (stock markets) reacted but with a delay, showing investors exactly what it is: namely that the government still needs to convince its own supporters that it will be able to deliver. The failed vote is clearly a sign that not everyone in the CDU (Christian Democratic Union) agrees with the fiscal U-turn.”
HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG, LONDON:
“This is a significant negative. He (Merz) is still likely to get elected but this shows that the coalition is not united, which could weaken his ability to pursue policies.”
STEFAN KOOPMAN, SENIOR MARKET ECONOMIST RABOBANK, AMSTERDAM:
“The market still sees Merz eventually becoming Chancellor. While (this is) a bit of an embarrassment, he fell only six votes short this time, and under Germany’s constitutional playbook, a Chancellor candidate who fails to secure an absolute majority in three rounds can still squeak through on a relative majority in the fourth.”
“But it’s not a good sign as he already suffers from low approval ratings among voters and the AfD looks to be strengthening.”
(Reporting by the Reuters Markets Team, Editing by Alun John)
