Angela Merkel's conservative alliance secured the largest proportion of votes in the September polls but finished with its worst result since 1949, forcing the long-serving German leader to try to stitch a coalition majority together. Those efforts hit a major roadblock after the chairman of the pro-business Free Democratic Party withdrew from negotiations late Sunday. The latest development left Germany with two unprecedented options – either Merkel forms a minority government, or else the President will call for a fresh election.
The likelihood of prolonged uncertainty in Germany is worrying investors considering Merkel has long been viewed as Europe's pre-eminent leader, having steered Germany through both the 2008 financial crisis and the subsequent Greek debt crisis. The Euro slumped broadly in early Monday trade, with EURUSD pulling further away from a one-month high of 1.1860 reached on Wednesday.