The government of German Chancellor Angela Merkel faces a critical vote on June 30. If it loses the vote, the country will be plunged into new elections just as German opposition to the euro debt bailout is near a peak.
There’s some chance that a government opposed to bailouts for Greece, Spain, and Portugal could win those elections. And an even better chance that any Merkel-led government that survived would be much weaker.
That could well send the Euro Zone back into crisis.
The vote on June 30 to fill the slot that Horst Kohler left open when he resigned as president in May doesn’t seem like it’s related to the euro crisis. The job is largely ceremonial and it’s filled by secret ballot by members of the German Parliament and representatives of Germany’s states.
But the vote comes after a series of electoral defeats and political defections tied to the deep unpopularity of Germany’s participation in the bailout of Greece and of the country’s participation in plans to support other deeply indebted European countries. The vote has thus taken on the stature of classic parliamentary test. A vote against Merkel’s candidate Christian Wulff will be the equivalent of a “no confidence” vote against Merkel’s coalition government and its euro policy.
The tide is running against the chancellor.
In May her coalition of Christian Democrats and Free Democrats got trounced in elections in North Rhine-Westphalia, Germany’s most populous state.
In addition to President Kohler’s departure, Merkel’s government has witnessed the resignation of Roland Koch, the leader of Merkel’s Christian Democrats in the state of Hesse. Koch will step down as state prime minister in Hesse in August.
Recent polls are against Merkel with a majority of German voters surveyed doubting that her government will survive until the end of its term in 2013 without calling new elections.
Any new elections aren’t likely to hand a clear cut victory to Merkel’s opponents, the Social Democrats. The most likely result would be that Merkel would have to patch together a new coalition government with less unity than the current alliance with the Free Democrats. A weaker coalition government will be even less likely to lead in the euro debt crisis and will show even more reluctance to support plans to guarantee the debt of Portugal and Spain as those countries struggle to avoid going the way of Greece.
As to the June 30 presidential vote, it’s Merkel’s misfortune that her candidate, a rather colorless state leader, is opposed by Joachim Gauck, a former East German human rights activist, who as overseer of the Stasi archives pursued the campaign to uncover the crimes of the East German secret police.
In a secret ballot Gauck could well win support from representatives in Merkel’s own coalition who nonetheless admire Gauck’s role in oposing the East German regime.
When it rains, it pours. Or as they’re saying in Berlin right now Ein Ungluck kommt selten allein.
Christian Democrats and Free Democrats have not been a popular group n North Rhine-Westphalia for a long time and it easy to over simplify this vote in May. I am putting my chips on a common sense bet for Germany to support the Euro. Nationalistic tendencies will be suppressed again in Germany.
Mr Vann,
The only thing I see which can cause the euro to go up is a weakening in the dollar, which is becoming much more possible with every bad economic report. While I wouldn’t take a long position in the euro, I might get out of my short position if it looks like the U.S. economy is clearly heading for a double dip recession.
Basically, if you aren’t already in a euro short position, I don’t advise getting into one.
Srian,
short covering, 5 year+ horizon investors and maniacs.
pressure is so strong to the downside right now. I was able to dump most of my few remaining long positions.
> whats the reason for the big rally today?
A rally in the Euro sparked a huge equity rally today as investors bought stocks with the hope that the sovereign debt fears have been overblown. Interestingly, investors shrugged off a slew of bad news. The Empire State manufacturing index missed expectations, homebuilder confidence missed expectations, Best Buy missed earnings, the ICSC retail sales report came in negative year over year, Greek bond yields spiked to over 9% while bond yields throughout Europe experienced similar action. Regardless, investors were keenly focused on the technicals of the market and chose to overlook the fundamental data. Volume was very light on the day though breadth was strong at 5:1.
http://pragcap.com/market-wrap-stocks-soar-5
Jim/ others,
whats the reason for the big rally today?
Ed, and others who have employed the euro-shorting play … some of us have chosen to take the profits with that play recently. Given this information, do you think it would be wise to jump back in if the Euro goes up a bit more (any thoughts on price)? Thank you for sharing your thoughts …
Jim:
Do you think tax related sell by investors will cap the market’s gain this year? Though today the market went up a lot.
Looks like it’s turning out to be an “Unglucked” summer…hot as Hades, full of twists and turns, surprises, roller-coaster market rides…looks like the “goosestep” is “in”…Poor Euro and poorer Greece et al! 6/30…date to sell!