German Coalition Building Collapse Reminds Why You Need Gold

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Last Updated on: 21st November 2017, 12:51 pm

Angela Merkel Photo Courtesy of Business Insider

Over the weekend, you saw news emerge from Germany that the long-running coalition talks had broken down. Germany's Chancellor Angela Merkel was unable to bring the parties together to form a stable majority-led government. This has dangerous repercussions for the political stability of other countries in Europe. Less stable but still important countries like Italy are set for similar problems going into their own elections early in 2018.

The geopolitical crisis in Europe's largest economy and chief decision making power Germany reminds you of why you need gold in your portfolio. Gold is the ultimate historically proven safe haven asset that has protected people for thousands of years now. The yellow metal will help safeguard your investment and retirement portfolios when political stability is breaking down. Now is a good time to review Gold IRA rules and regulations and to think about Gold IRA storage options.

German Coalition Talks Collapse Even As They Were Rumored to be Progressing

Sunday night saw the Free Democrats, one of the critical coalition partners Merkel had been courting, simply walk out of government forming talks. They and other parties had become increasingly frustrated over heated debates on especially migration.

This was a body blow to Merkel as her CDU party had suffered its poorest showing in September elections since the Second World War. Her party still captured enough seats for her to secure a fourth term as head of Germany, as the graph below shows:

The problem was that she lacks a strong enough mandate and number of Bundestag members for her to govern with a majority. For her to attempt to run Germany without this would risk her facing the political instability of U.K. Prime Minister Theresa May. Merkel would be forced to rule with alliances that were constantly shifting from one issue to another.

The German President Steinmeier intervened in a rare display from his ceremonial post. Germany's president argued that such a stalemate had not occurred in post-war history. He begged the various factions to come back and continue negotiations so it would not be necessary to call another election, with the warning:

“All those involved should pause again and rethink their positions. I expect everyone to be willing to talk to make it possible to form a government in the foreseeable future. Those who seek political responsibility in elections must not be allowed to shy away from it when they hold in in their hands.”

These were harsh words, but they have so far not been enough to strong arm the parties back to the table.

Angela Merkel May Resort to Minority Government for Her Fourth Term

Merkel was stunned and hard hit by this unexpected breakdown of the coalition negotiations. Her immediate reaction was to ask the officials of her CDU party and President Steinmeier to investigate how she could rule with a minority government. Merkel soberly faced reporters with the statement:

“As chancellor, as caretaker chancellor, I will do everything to make sure this country continues to be well governed through the tough weeks ahead. It's a day at the very least for a profound examination of Germany's future.”

What happens next is not certain. If President Steinmeier can not help put together such a minority government or manage to get the parties to resume negotiations, then he will be the one to announce another election.

Issues So Divisive The German Parties Can Not Come Together

It is a real concern that the issues have become so divisive in Germany that the traditionally stable country's parties can not come together. This is also a warning on the future of Angela Merkel. Without a doubt this is her most serious political setback since year 2005 when she initially became chancellor. She has an envied history of bridging differences between the various German parties. Yet thanks to serious differences in opinion over immigration, energy, and climate issues, she could not manage it.

Part of the problem stems from the fact that the previous coalition partners which worked with her have taken severe hits themselves. Her junior partners from the last coalition were the Social Democrats. Their head Martin Schulz reiterated on Monday that they will not be in another CDU government, with or without Merkel as the leader. Meanwhile the FDP Free Democrats' Chairman Christian Lindner was frustrated by “countless contradictions” in the coalition draft agreement.

FDP positions are a serious challenge to Merkel's vision of Europe, as they espouse the ability of nations to withdraw from the Euro currency without having to depart from the European Union. That she needs to rely on parties which so disagree with her core positions shows how badly the European refugee crisis has damaged Merkel and her Christian Democratic Union. This allowed the populist Alternative for Germany to reach parliament on their anti-immigration stance.

Migration Is the Controversial Issue Upending German Political Stability

Merkel has become a victim of the the migration crisis that has created a raft of problems throughout Europe. Her open door policy enabled approximately a million refugees to seek asylum in Germany. This angered enough one- time voters from her party and its sister party the CSU enough that they instead voted for AfD Alternative for Germany. As a result, Merkel's political block saw a vote share decline to 32.9 percent in the fall elections. This represented its worst showing since 1949.

It was these arguments over how and how much to restrict immigration that plagued the coalition negotiations since the beginning. This echoes the strong feelings of the German voters who propelled the AfD into the Bundestag thanks to their 12.6 percent vote total. All of these problems together reveal how Merkel's critical influence in Europe is diminishing. It comes at a time when other European countries with problems need to see governmental stability from Germany.

The German Political Gridlock Foreshadows Trouble in Other European Countries Like Italy

Germany is supposed to be the politically stable core country of the EU. Yet it's problems are not unique in Europe. Italy is the third largest economy in the Eurozone. It has elections coming up early in 2018, most likely in March. Investors are already fearful of the Italian perfect storm of ineffective government, economic malaise, and bad bank debts which continue to plague the country. Italy also boasts a dangerous 130 percent ratio of debt to GDP.

These have threatened to bring to power a party which wants to test the country's relationship with the Euro. This Five Star Movement led by Beppe Grillo continues to poll evenly with ruling Prime Minister Paolo Gentiloni's Democratic Party.

Even the slightly poll-leading coalition headed by former Prime Minister Silvio Berlusconi and his Forza Italia includes an anti-immigration and euroskeptic party the Northern League. Yet as with the problems in Germany, none of the three primary contenders boast sufficient support to be able to attain a workable parliamentary majority.

Political Instability Leads to Paralysis and Can Start Market Declines

The real concern in countries like Germany and other European nations is that political instability will be the result of these elections. Ineffective governments lead to paralysis in such nations that are facing very real challenges like migration and mounting bad bank debts. They can also contribute to market jitters that encourage financial market pullbacks.

This is why you need to be able to count on the historical bedrock of gold in your retirement portfolio. Gold still glitters for many world leaders who understand the dangers of political instability at critical times. It is why gold makes sense in an IRA today. Now is a good time to get some IRA-approved gold before more geopolitical instability breaks out around Europe and the world.

David Crowder
David Crowder

W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.

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