German political crisis weighs on euro and European equities

LONDON - European stocks opened lower on Tuesday and the euro hit an eight-day low against sterling as a governing crisis in Germany weighed on markets.

The pan-European Stoxx 600 index opened down 0.3 percent, hitting the MSCI world index, which pared overnight gains to trade flat on Tuesday. On Monday evening German chancellor Angela Merkel said she would prefer fresh elections to ruling with a minority government after talks on forming a three-way coalition collapsed.

German President Frank-Walter Steinmeier said Germany was facing its worst governing crisis in the 68year history of its post-Second World War democracy and pressed all parties in parliament "to serve our country" and try to form a government.

"The events have already been likened to Germany’s Brexitmoment," said Daniel van Schoot, an economist at Rabobank. "That is perhaps exaggerated, but the German political situation is now very unpredictable, more than in the past three decades."

Uncertainty in Germany kept a lid on the euro. It was broadly flat after falling 0.52 percent on Monday - its worst day since late-October.

The common currency hit an eight-day low against sterling, before recovering some losses to trade just 0.03 percent lower. In emerging markets, the focus remained squarely on the Turkish lira - which hit a record low of 3.9780 against the dollar.