Why The Euro Took A Dive After Merkel’s Re-Election

After the German elections held on the 23rd of September, the euro started a pronounced decline. But why was there such a sharp fall of the common currency?

At the end, the election´s result does not seem to bring dramatic changes. Despite its losses, Merkel´s party, the CDU, remained the strongest force in the parliament. Merkel will continue to be German chancellor. It is true that the AfD (Alternative for Germany) with both a nationalistic and a libertarian wing won a spectacular 12.6% of the votes and made it into the parliament for the first time. Nevertheless, the euro-critical AfD is light years from being part of the government. All other parties ostracize them for supposedly being extremists.


The next German government will likely be formed by a “Jamaica” coalition of CDU, FDP (free democrats) and the Greens, because the up to now governing social democrats (SPD) will abstain from attempts to renew their coalition with Merkel.

So with Merkel remaining chancellor why did the euro take such a large dive in the wake of the election? The answer is related to French President´s Emmanuel Macron´s speech only two days after the German election, in which Macron argued in favor of a new foundation for Europe. Among other proposals, Macron called for a European financial transaction tax and for the harmonization of social security and corporate taxes within the European Union. His statist proposals also include a common budget for the 19 Eurozone member as well as a Eurozone finance ministry and eventually some sort of Europe-wide taxation. 

Why did Macron wait with his speech until after the German election? The answer is straight-forward. A large part of German population is against an European Superstate and the transfer of sovereignity to Brussels as envisioned by Macron. If Macron had held his speech before the election, Merkel would have had to react to it. If she would have approved Macron´s plans, she most likely would have lost many more votes. As Macron expected resistance from German voters, he waited. He was speculating on a renewed pro-EU coalition of the SPD with Merkel to push forward his agenda. He rightly feared the entrance of the FDP into the government. According to Le Monde Macron stated in July: “If she allies with the FDP, I am dead.”

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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