Crédit Agricole notes on the Euro - FJElite

This so-called Grand (Red/Black) coalition between the CDU/CSU and the SPD will have points of friction over social welfare spending, migration and reforms to the constitutional debt brake to finance a large increase in defence spending and public infrastructure. With the fiscal hawk FDP out of the picture, reforms to the debt brake are more likely, which along with the Euro-sceptic AfD being kept out of power, is supportive of the EUR.

The EUR has rallied in the immediate aftermath of the election and could remain supported in the very near term. That being said, it remains to be seen how quickly the main mainstream parties will be able to form a coalition government. In addition, there are considerable differences among these parties about the funding of future fiscal stimulus. These differences could complicate and delay any fiscal activism that would be needed to help the German economy recover.