European stocks slipped and safe haven government bonds were in demand early on Monday as the collapse of coalition talks in Germany served as a reminder of political risk that still runs as an undercurrent in Europe. Sonia Legg reports
It's the euro zone's rock but it seems even Germany isn't immune to the odd political earthquake. Germany's Dax lead European stocks down almost 0.3 percent after the collapse of coalition talks. And the yield on Germany's 10-year government bonds edged towards a 1-1/2 week low at one stage. But it could have been worse. (SOUNDBITE) (German) HEAD OF CAPITAL MARKETS ANALYSIS AT BAADER BANK, ROBERT HALVER, SAYING: "The stock markets are cool. The currency markets too - they know we will have a government sooner or later. The decisive elements for markets are monetary policy and the global economy. They're working rather well, nobody needs to be afraid." But Angela Merkel does have reason to be nervous about the worst political crisis in Germany for decades. Fresh elections are an option, raising doubts about her fourth term in office. (SOUNDBITE) (German) GERMAN CHANCELLOR, ANGELA MERKEL, SAYING: "It is a day of deep reflection at least on how to go forward in Germany. As Chancellor, I will do everything to ensure that this country is well-managed in the difficult weeks to come." Some have compared the shock to the election of Trump and the Brexit vote. But Germany's economic strength helped prevent any market panic. (SOUNDBITE) (English) IG, MARKET ANALYST, CHRIS BEAUCHAMP, SAYING: "German GDP is very strong of late pushing towards that 3 percent year on year level that we didn't think one of Europe's ageing countries could actually do. A little bit of uncertainty of course will feed through but it's unlikely that we'll see too much even if we get another set of elections. The economy should continue to sail regardless." Some are speculating the main opposition parties may yet change their minds about forming a coalition. A fresh election would give the far-right anti-immigrant AfD party an opportunity to add to its 13 percent vote tally. Avoiding that is something they do agree on.