German stocks drop as Merz stumbles in historic Bundestag defeat

Yahoo

06-05-2025

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Yahoo is using AI to generate takeaways from this article. This means the info may not always match what's in the article. Reporting mistakes helps us improve the experience.
Yahoo is using AI to generate takeaways from this article. This means the info may not always match what's in the article. Reporting mistakes helps us improve the experience. Generate Key Takeaways
Friedrich Merz's failure to clinch a Bundestag majority sent shockwaves through German assets on Tuesday, raising questions about the country's political stability as economic clouds darken over Europe's largest economy.
The DAX 40 index slumped 1.5% to 22,924 points by late morning in Frankfurt, threatening to snap a nine-day winning streak. Eurozone-wide losses followed, with the Euro Stoxx 50 index down 1.1% at 5,225.
German government bonds also moved sharply. Benchmark 10-year bund yields rose to 2.54%, the highest since mid-April. The euro slipped from $1.1350 to $1.1310.
"His setback adds fresh uncertainty to Germany's export-driven economy, which is already under pressure from shifting US trade policies," said Welt's Holger Zschäpitz.
"The DAX corrects,' said Daniel Lacalle, chief economist at Tressis. 'Germany voted for change. Politicians decided to keep everything unchanged. Now, the coalition of industry and economic destruction cannot even agree to vote a chancellor.'
What went wrong in the Bundestag?
Merz, the leader of the conservative CDU/CSU bloc, had secured a post-election coalition agreement with the Social Democrats.
Yet in a stunning reversal, he received just 310 of the 316 votes needed in the Bundestag to officially become chancellor. It is the first time in postwar Germany that a presumptive chancellor has failed to gain parliamentary approval after a successful coalition deal.
The outcome of the vote sent parliamentary groups scrambling.
According to German law, a second vote must take place within two weeks. If no majority emerges again, a third round may proceed with a simple majority. Failing that, the president has the power to dissolve the Bundestag and call fresh elections.
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High hopes, now in limbo
Merz had campaigned on a bold, business-friendly agenda to revive Germany's stagnant economy. His coalition plan included a €500 billion infrastructure investment package, a pledge of unlimited defence spending capacity, and a clear alignment with Ukraine in its war against Russia.
That programme, heavily anticipated by markets, now hangs in the balance.
Merz had been scheduled to travel to Paris and Warsaw on Wednesday to meet with President Emmanuel Macron and Prime Minister Donald Tusk, aiming to bolster European defence coordination. That trip has been postponed indefinitely, further fuelling perceptions of disarray.
German industrial stocks fall
Germany's industrial heavyweights were the first to feel the fallout. Rheinmetall AG, the top-performing DAX stock of 2025 amid soaring defence demand, fell 2%. Siemens, MTU Aero Engines, Porsche AG, BASF, Infineon, and Daimler Truck Holding AG all shed about 2.5%.
Only two DAX members emerged in positive territory: Fresenius Medical Care (+3.8%) and Symrise (+0.2%).