Friedrich Merz's failure to secure a majority in the Bundestag in the first vote sent shock waves through German assets, raising questions about the country's political stability, Euronews reported.
By late morning in Frankfurt, the DAX 40 index had fallen 1.5% to 22,924 points, threatening to break its nine-day winning streak. Losses followed across the eurozone, with the Euro Stoxx 50 index falling 1.1% to 5,225 points.
German government bonds also changed sharply. The yield on 10-year bonds rose to 2.54%, the highest since mid-April. The euro fell from $1.1350 to $1.1310.
"Its failure adds new uncertainty to the export-driven German economy, which is already under pressure from changing US trade policies," said Holger Schätzing from Welt.
"The DAX is correcting itself," said Daniel Lacalle, chief economist at Tressis. "Germany voted for change. Politicians decided to keep everything unchanged. Now the coalition of industry and economic ruin cannot even agree to vote for a chancellor."
Merz, the leader of the conservative CDU/CSU bloc, had secured a coalition agreement with the Social Democrats after the election.
However, in a stunning reversal, he received only 310 of the 316 votes needed in the Bundestag to become chancellor. For the first time in post-war Germany, a presumptive chancellor failed to win parliamentary approval after a successful coalition agreement. In a second vote later on May 6, the conservative politician managed to secure the support of 325 MPs.
In his election campaign, Merkel had proposed a bold and business-friendly program to revive the stagnating German economy. His coalition plan included a €500 billion infrastructure investment package, a promise of unlimited defense spending, and clear support for Ukraine in Russia's ongoing total war against its neighbor.
This program, which the markets had been eagerly awaiting, is now hanging in the balance.
German industrial heavyweights were the first to feel the effects. Rheinmetall AG, the best-performing DAX stock since 2025 amid growing demand for defense products, fell 2%. Siemens, MTU Aero Engines, Porsche AG, BASF, Infineon, and Daimler Truck Holding AG lost around 2.5%.
Only two DAX members ended up in positive territory: Fresenius Medical Care (+3.8%) and Symrise (+0.2%). | BGNES