How Germany's election shake-up could change its economy

Angela Merkel arrives for a news conference at the CDU party headquarters the day after the general election in Berlin

She had also distanced herself from some of the AfD's more radical senior members, saying their comments were putting voters off.

Riding a sharp increase in voter support, it achieved 13 percent, becoming the third-largest political group in the Bundestag. Difficulties lie ahead for the chancellor, the most immediate being forming a government.

The euro has held its ground against the British pound recently, despite news and comments suggesting a Bank of England (BOE) rate hike will come in 2018. That arrangement is unlikely to continue because, in order to undermine the SPD, Merkel's milquetoast Christian Democrats have moved to the left.

The pound to euro exchange rate has risen from €1.12833 to highs of €1.13781 over the past day, following the German Election results.

"And that's democracy, to discuss the problems". And for the first time since 1945, a far-right nationalist party will occupy a prominent place in the nation's politics. But things are likely to be different this time around.

SPD deputy leader Manuela Schwesig has ruled out a re-run of Mrs Merkel's existing alliance with the party, confirming that her party will now go into opposition.

"We will take our country back", vowed the AfD's jubilant Alexander Gauland, who has recently urged Germans to be proud of their war veterans and said a government official who is of Turkish origin should be "dumped in Anatolia".

The shift to the right, which was evident not only in Germany but also in Europe and the United States, was "deeply worrying", the cardinal said.

Citing "dissent" with more hardline colleagues, Ms Petry dropped her bombshell at a press conference, catching other key AfD figures by surprise as she abruptly left the room.

The result points to the direction of more internal tensions and more polarization within Germany, making it more difficult for Merkel to mesh with Macron's demands for reforms to deepen the EU and the eurozone, explained Schout.

Merkel, already Chancellor for 12 years, had run a low-key campaign emphasising the country's falling unemployment, strong economic growth, balanced budget and overall stability in a volatile world.

An alternative coalition for Mrs Merkel would be a three-way tie-up with the pro-business Free Democrats (FDP), who secured 10.7%, and the ecologist Greens, who achieved 8.9%.

'UK PM May´s landmark speech on Brexit negotiations was a step forward and reduces the risk of an early end to the negotiations and ultimately of a cliff-edge departure by the UK in March 2019, ' said strategists at Credit Agricole.

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