The euro slid in Asian trade overnight thanks to 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 trying 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, following federal elections at the end of September.
Announcing the collapse of talks as an “almost historic day”, Angela Merkel on Sunday night 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.
In a month of talks, Merkel has often cut a passive figure as party representatives found themselves at loggerheads over issues such as the question of how many of the migrants who found their way to Germany in 2015 and 2016 would be allowed to be reunited with their families.
Migration emerged as a contentious political issue in Germany following the refugee crisis, when 1.2 million migrants entered the country in 2015-16. The backlash against Merkel’s decision to keep open Germany’s borders has resulted in a far-right party, the anti-refugee Alternative für Deutschland, entering the German parliament for the first time in more than 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 – as 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 8-10 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. Yet the talks went on past that deadline.
If the parties had come to an agreement, negotiations would have moved to the next stage, in which a document with fundamental agreements provides the basis for the carving up of ministerial roles.
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 exhausted, Germany’s president, Frank-Walter Steinmeier, could dissolve the current parliament and call fresh elections. To get there, however, Steinmeier would need first to set into motion a complicated process that would involve a parliamentary vote on Merkel’s role as interim chancellor.
While the debate in Germany over the past few weeks has mainly focused on policy differences between the parties, it is likely to soon shift to the chancellor, and the question of whether or not she still commands sufficient power to hold together a strong government.
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