Euro Under Pressure Amid Political Uncertainty in Germany | Macquarie Analysis
The euro is facing increasing pressure as political polarization in Europe, particularly in Germany, raises concerns about the currency's stability, according to Macquarie analysts. Recent state elections in Germany have seen a rise in support for far-left and far-right parties, leading to fears of centrist governance unraveling.
The analysts warn that the growing strength of fringe parties poses a medium-term risk to the euro, especially if they gain more power in government or if Germany's current coalition collapses before the 2025 federal elections. This political uncertainty not only affects Germany but also presents a broader challenge for the eurozone.
Furthermore, Germany's manufacturing sector is already under strain from various economic challenges, and the rise of extremist parties could further complicate policy responses. The potential impact on companies like Volkswagen, which is considering plant closures in Germany, highlights the deepening economic challenges.
The election results in Germany also raise concerns about a more fragmented political landscape, making it harder for mainstream parties to govern effectively. Similar difficulties have been seen in France, where a stable governing coalition is yet to be formed after the rise of far-right and far-left factions.
Looking ahead to the Brandenburg state election on September 22, polls suggest a decline in support for mainstream parties, raising the possibility of a federal coalition breakup before the scheduled 2025 elections. This could lead to higher deficits, increased sovereign risk, and protectionist policies, all of which could negatively impact the euro, according to the analysts.
In conclusion, the political uncertainty in Germany and the rise of extremist parties pose significant risks to the stability of the euro. Investors and individuals should monitor the situation closely, as it could have implications for their finances and the broader economic landscape.
