Breaking.

Angela Merkel has agreed with Social Democrats on a new coalition German government.

Political leaders in Germany have reportedly reached a breakthrough in talks to form a new coalition government, following months of uncertainty after elections in September failed to produce an overall majority for any party.

German Chancellor Angela Merkel’s Christian alliance and the Social Democrats (SPD) have agreed on a deal, according to media reports on Wednesday. Citing anonymous sources within Merkel’s conservatives, Reuters reported that the two sides had agreed on a formal coalition deal. However, another source could not confirm that, saying that the parties were still at odds on some issues.  – CNBC 

Not a done deal as agreement must be ratified by SDP,

Upshot

The SPD is very pro Europe.  A big boost for eMac in France and should soften Germany’s hardline austerity policy in the periphery.

Look for bond Convergence 2.0  to continue.  An SPD-led German FinMin is a positive economic shock to the eurozone economy.  Higher euro, higher bund yields putting more pressure on ECB to end QE.

One big caveat is the SPD’s greater influence in the economy could stoke more pushback from the growing hard right in the country.