Chancellor Friedrich Merz's CDU suffered heavy losses in two German regional elections on Sunday, falling below the 5% threshold in one state. The result piles pressure on Merz even as he vows to stay on, and it feeds a slowly building political-risk narrative.
Germany's ruling CDU took a sharp hit in Sunday's regional elections, and the damage was worst in the northeast. According to preliminary results, the party fell to 4.9% in Mecklenburg-Vorpommern, missing the 5% threshold. It managed only 18.8% in Berlin.
In Mecklenburg-Vorpommern, the far-right AfD finished ahead of the social democratic SPD, taking 38.2% against 35.5%. The other parties have ruled out forming a coalition with the AfD, so it remains unlikely to enter government despite the result. In Berlin, Die Linke topped the state election with 25.7%.
Merz described the north-eastern outcome as "disaster", according to ActionForex, but said he intends to stay on as Chancellor and press ahead with his reform agenda. Still, the pressure on him is building. The setback raises the likelihood of a change of Chancellor and reinforces a slowly building political-risk-premium narrative, though a breakdown of the federal coalition still looks unlikely for now.
Separately, EUR/USD consolidated below 1.15 on Friday, as energy prices stayed relatively little changed.
Source: ActionForex
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