The German conservatives won the national election on Sunday (February 23) local time, but the unprecedented performance of the far right Alternative for Germany (AfD) party has led conservative leader Mertz to face complex alliance negotiations. As the largest economy in Europe, Germany is facing social division and diplomatic pressure. The formation process of the coalition government in Merz may take several months, which will have an impact on the stability and policy continuity of the eurozone.

Election results and political landscape

The conservative Christian Democratic Union (CDU)/Christian Social Union (CSU) won 28.5% of the vote, becoming the largest party, but achieved the second worst election result after the war.

The far right Alternative for Germany (AfD) party received 20.5% of the vote, doubling from the last election and becoming the second largest party.

The Conservative Party led by Mertz and other mainstream political parties have excluded the possibility of cooperating with the AfD, increasing the complexity of forming a coalition government.

Mertz's Challenge

Mertz lacks a strong negotiating stance and must form an alliance from the fragmented Congress, a process that may take several months.

He may need one or two partners to form a majority party, and the fate of other small parties is uncertain, which could disrupt the composition of the parliament.

A coalition government composed of three parties may be more cumbersome, hindering Germany's ability to demonstrate clear leadership.

Diplomatic and domestic pressures

After winning the election, Mertz criticized the remarks made by the United States during the campaign and compared it to Russia's intervention.

He stated that the primary task is to achieve European unity and gradually achieve true independence from the United States.

German society is divided due to immigration issues, while security concerns are sandwiched between the United States, Russia, and China.

Analysis of the Impact on the Euro

Short term impact: Political uncertainty and delays in forming a coalition government may lead to a decrease in market confidence in the euro and increase exchange rate volatility.

Long term impact: If Mertz successfully promotes European unity and independence, it may enhance the overall stability and economic strength of the eurozone, providing support for the euro.

Risk factors: The complexity of the coalition government and delays in policy implementation may hinder Germany's leadership role in the eurozone, affecting policy coordination and economic recovery in the eurozone.

Market reaction: On Monday (February 24th) in the Asian market, the euro rose sharply against the US dollar, currently up 0.45% and trading near 1.0505, a new high in the past week. The resistance at the high point on February 14th was around 1.0513.

summary

The results of the German election show the division of voters and dissatisfaction with the status quo, and the challenge of forming a coalition government faced by Mertz will affect Germany's policy direction and European unity. For the euro, political uncertainty may lead to market volatility, but Mertz's commitment to promoting European unity may bring long-term stability to the eurozone. However, the complexity of the coalition government and the delay in policy implementation may put pressure on the euro in the short term.