Angela Merkel, Prime Minister of Germany has just won a huge personal victory for herself and her political party, but her governing coalition has been voted out of office. This sounds strange to Americans as we are used to a “winner take all” election for our presidents.
In America, we have two major parties and one or the other wins and the winner forms the entire government. However, Germany, like most democracies, has a parliamentary form of government where the party that wins the election has its party leader serve as the national Prime Minister…if it wins an outright majority of the seats in Parliament. That doesn’t happen very often as most parliamentary nations have a plethora of political parties so the party that wins the most votes needs to form a coalition government by combining with other parties to form a majority coalition.
Something odd happened in Germany. Merkel won a very large victory for her party, but it fell just short of an outright majority. Ordinarily, that would not be an issue as her party usually formed a governing coalition with the Free Democrats, who generally went along with Merkel’s party on almost all vital issues. However, a big problem for Merkel happened in this election. In the German system, no party receives representation in parliament unless they obtain 5% of the national vote. The Free Democrats, quite unexpectedly, did not receive that level of votes so Merkel’s current coalition actually lost the election as it was voted out of office. Merkel now has to form a new coalition government by making some compromises with another political party to form a government. The links below describe her personal victory and some of the possible compromises that she now faces in order to form a new coalition. Given her personal victory, I have little doubt she will form the new German government after making some policy compromises that will be implemented in her new coalition.
Merkel must move to the left to include one of the socialist parties in order to form a coalition, and that means she will likely have to alter her policies in her relationship to the EU, to the bail-out policies for other nations in the Eurozone, etc. This could have major ramifications for Europe’s banking system if she must agree that new bail-outs for weak economies in the Eurozone will have to include greater “hair-cuts” for the banks and other lenders and fewer hardships imposed on the masses. Since Merkel has to rely on the support of some socialists to stay in power, she may be forced to make some changes she would not have previously even considered. Whatever party she merges with as a coalition partner will also receive control of some German governmental ministries. If a controversial issue comes up in the future and she loses a parliamentary vote, her coalition could collapse. She will already have some trouble as one of the first three links below notes that Germany’ upper parliamentary house will be controlled by the socialists so that is another reason she will be required to move left in order to pass any legislation through both German houses of parliament. 
For these reasons, Merkel’s huge personal victory—accompanied by the defeat of her governing coalition—has created much uncertainty in Europe’s governmental and economic future. The last link discusses some of these issues. Germany now carries so much weight in Europe’s future that the extent to which Merkel is forced to move to the left will have a huge impact on many European nations, their economies and on the entire world.
We all need to watch how much Germany’s new governing coalition changes Merkel’s previous policies. These differences could have major impacts on Wall Street and economies and currencies far outside of Germany’s borders. Some of these changes may have biblically-significant impacts. Currently, we cannot predict what these effects may be. However, it is clear the German elections will force Merkel to make some changes in her past policies.