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November 21, 2017 By Joseph P. Farrell

Well the few days before the American Thanksgiving holiday, and I have to admit, the news and articles have been piling into my inbox in a torrent. In fact, rather than my usual one-day Thanksgiving vacation, I'm going to take two this year, because there is so much to sort through it's going to take a while. One of the stories, though, didn't take long to shoot to the top of the list this week, and that was this story from Zero Hedge sent along by Mr. V.T.:

"Worst Case Scenario" Looms As Merkel's "Jamaica Coalition" Collapses

Now, just to review, you'll recall that Mad Madam Merkel went to the polls a little over a month ago, and the results were... well, less than good for her coalition government. For one thing, the SDP (Social Democrat Party) wasn't going to be participating in any future coalitions. The former Foreign Minister, Herr Steinmeir, had exited the federal cabinet and been "promoted," and perhaps more importantly, the former Finance Minister, Herr Schauble (sorry folks, no umlauts!) also left the cabinet. Of the two, I think the Schauble exit from Mad Madam Merkel's cabinet is the more significant. Between the two, this was quite a loss of brainpower. Schauble, you'll also recall, was the finance minister who showed up in China for a G8 "gathering" a couple of years ago, and told it like it is: the debt growth model is over, there's no way forward that's not a reform.  Meanwhile, Mad Madam Merkel and the Brusselscrats continued to flood Europe with refugees, impose austerity, and ignore Eastern Europe viz Hungary and Poland, and the result was...well, for one thing, a 32 year old Chancellor in Austria. Merkel's CDU lost seats in the Bundestag, leaving her to cobble together a coalition with what is left, and since the SDP won't go with her any farther (can you blame them?), and the AfD (Alternativ fur Deutschland) which amassed 90+ seats won't either, that left Mad Madam Merkel in a similar position to Teresa May: having to reach out to anything in order to retain power in a rather different kind of coalition...

... between the Greens and the Free Democratic Party, representing predominantly German business who are needless to say, not exactly on the same end of the spectrum as the Greens. As the article is reporting, and as I suspected might happen, the talks have broken down, with the FDP walking out of the talks:

We warned on Friday that German Chancellor Angela Merkel faced a 'night of the long knives' in her efforts to bring together the co-called 'Jamaica' coalition of four parties and after a desperate weekend of talks, Bloomberg reports Merkel's efforts at forming a coalition have failed meaning a second election looms and sending the euro sliding.

As Bloomberg reports, talks on forming German Chancellor Angela Merkel’s next government collapsed, throwing the future of Europe’s longest-serving leader into doubt and potentially pointing the world’s fourth-biggest economy toward new elections.

After a 12-hour negotiating session that ended shortly before midnight Sunday, the Free Democratic Party walked out of the exploratory talks, saying the differences with the Green party were too great to bridge.

The prediction? Well, Zero Hedge references Bill Blain, who offers the idea that with Mad Madam Merkel in trouble, France will get to play Karl der Charlemagne in the EU while Germany sorts out its problems:

As MINT Partners' Bill Blain noted previously,Germans are not used to multiple elections – and a second vote early next year would be massive negative for Merkel herself – she may even have to stand down if coalition looks like falling. That could be massive shock.

As a result, the prospects for more volatile European peripheral markets, particularly Greece and Italy, are likely to be exacerbated, and we might well see some of the currency and European stock market froth blow away in coming days as the scale of the “German Problem” becomes clearer.

  • My worst case Germany scenario is a second election early next year, political uncertainty as Mutti Merkel finds herself squeezed out, and a scramble to build a new coalition government in her aftermath.
  • The best case scenario isn’t much better: that Merkel manages to forge a new coalition, but it will be a long drawn out affair and the resulting administration will be vulnerable, weak and fraxious.

These sound like German problems, but they mean the “leader of Europe” is likely to be entirely inward focused in coming months/years.. at a time when the European union will be facing a host of new issues regarding closer union, banking union and reform of the ESM, bailout and QE policies. There will also be new potential crisis points – Italian elections next year, Greece bailout, renewed immigration crisis or a blow-up with Trump. And these are just the known unknowns.

This has profound implications for the so-called French/German axis as it slides towards Paris.

I'm not so sure. I think there is a possible chance for leadership challenges in the CDU, as possibly for another and earlier election, and this time, with Merkel gone, a new coalition government - one not trying to mix oil and water like the FDP and the Greens - might possibly be in the offing, and the SDP closing ranks and extending some branches to that party which Merkel will never countenance in a coalition. Behind the lines of the FDP walkout (not to mention the showing of the Afd), I'm sensing, perhaps, that the real message is "your policies have failed, Frau Merkel," and that "Merkel muss weg!"(Merkel must go!") might actually be being whispered in the corridors of the old Reichstag in Berlin. And then, of course, there's the matter of allowing M. Macron to play Charlemagne, which would mean more of Merkel, and which, in turn, means simply kicking the can not only down the road, but across the border.

Time will tell of course...

See you on the flip side...