WITH so much excitement and political intrigue at home and in the US, many people will have failed to notice that the sun may be setting on one of the most important eras in post-war European politics.

Angela Merkel’s 12-year chancellorship may finally be coming to an end.

That’s significant because her position at the helm of Europe’s biggest economy has made her the continent’s most important leader.

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She was the leader who others turned to when Europe suffered an existential debt crisis.

The chancellor known as mutti (an affectionate form of mother) has enjoyed popularity that at times vastly outstripped that of her party, the centre-right CDU.

During Ms Merkel's chancellorship, which began in 2005, Germany has seen a decline in its unemployment rate from a post-reunification high of more than 11 per cent to a low of 3.7 per cent last year.

While her CDU and Christian Social Union (CSU) ally won the 2017 election, they lost a total of 65 seats.

Their main rivals and former coalition partners, the centre-left SPD, did almost as badly.

If there is a lesson to be taken from this humbling result for the political mainstream, it is that voters do not reward parties for forming coalitions. So it is perhaps understandable that, following the inconclusive election result, talks to reach a workable agreement have been rumbling on for four months without reaching a conclusion.

Germany owes its recent economic success in large part to its adoption of flexible labour market policies in 2004.

A legitimate question is whether these policies might be under threat.

Clearly, regardless of who controls the Labour and Social Affairs Ministry, any material change in policy will need to be approved by the whole government.

It is also an enduring irony that Germany’s extreme liberalisation of its labour market was implemented by the last SPD chancellor Gerhard Schroder.

The short-term pain caused ultimately handed Ms Merkel the chancellorship and the economic success that has helped her stay there until now.

Both the CDU and SPD are pro-European integration to varying degrees.

Both are reasonably consistent in their views on immigration - indeed this is likely the reason they both managed to lose seats at the last election.

Should the talks collapse, this could unsettle investors, who are currently extremely enamoured with the eurozone.

Were a second election held, there is a good chance of Ms Merkel’s CDU winning.

In fact, this would be a better solution for the eurozone.

If instead, the current coalition talks are successful, it would leave the eurosceptic and nationalist Alternative fur Deutschland (AfD) as the official opposition, giving them plenty of airtime and representation on committees.

The talks may have collapsed, but if they concluded successfully, there will be a ballot of SPD members and this is seen as the biggest hurdle a new coalition would face.

If it stumbles at that point, then we will be looking for any sign of an irrational market reaction.

There has been speculation the CDU would run with a different candidate in a second election, which might be enough to shock investors, though this is unlikely.

In a second election, parties will do what is necessary to avoid painful coalition talks and a path to a centre-right victory appears to be opening, which ought to please investors considerably.