Chancellor Olaf Scholz's fragile 3-party coalition government collapsed yesterday following the sacking of Finance Minister and Free Democrat (FDP) member Christian Linder over budget disagreements. The so-called"traffic-light" coalition has governed Germany since 2021 but, with the administration having now lost its parliamentary majority, faces the prospect of a snap election early next year unless the opposition can force Scholz out earlier. A vote of confidence is expected to be held in the Bundestag on 15 January.

Coming just after Donald Trump's clear-cut victory in the U.S. presidential elections, increased political instability in the Eurozone's largest member state will do nothing to bolster investor confidence in the euro. As it is, ECB interest rates are falling more quickly than their Federal Reserve counterparts and sluggish Eurozone economic growth is likely to be further dampened by additional U.S. tariffs. Indeed, with the U.S. its most important export market, accounting for close to 10 percent of total sales, Germany could suffer disproportionately.

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