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German Stocks To Consider As Angela Merkel Wins Reelection

James Dennin, Kapitall: German elections are confusing enough, but why is the market down despite the re-election of business-friendly Angela Merkel?

Eyes were on Western Europe this weekend, as Angela Merkel sought re-election in what was seen as an important referendum on her pro-business, pro-EU policies. And yet, despite calls for a minimum wage and other leftist reforms on issues like climate change, Merkel was swept to one of the largest victories for her party since 1990.

While the markets seem less enthused than one might think – German stocks are down as of this morning – it might have more to do with the idiosyncracies of the German political system than with Merkel's influence on the business community at large.

Germany's electoral system is one of the most complicated in the world. More wary than most about the dangers of centralized authority, the framers of the current German constitution wanted to make it hard, if not impossible, for any one party to gain too much power.

But they also didn't want it to be impossible for moderate parties to gain prominence, as it was before WWII when the Nazi's rose to power. As a result they set up a mixed parliament, with voters casting one ballot for individual candidates and one ballot for party elections.  

Parties need to get a fairly large percent of the vote just to enter parliament - 5%. This helps explain why Germany is almost always ruled by coalition governments, and perhaps the main reason why markets were somewhat shaken this morning. There was a hope among many that Merkel's success was sweeping enough for her Christian Democrats to have a majority to govern outright. She came close, but not close enough to avoid a period of temporary uncertainty.

The extent of that uncertainty however, has greatly diminished. Many different parties are expected to vie for a seat in the coalition government, and are expected to negotiate for various concessions from Merkel's own party. However, with Merkel firmly installed for a third term – and considering the robust majority her party was able to garner – rule by a coalition of more liberal parties is all but unthinkable. 

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