Europe's economies and markets have nothing to fear from the defeat of Chancellor Angela Merkel's party in German regional elections this weekend as the euro zone crisis will be on hold until Germany's national elections in September, analysts told CNBC on Monday.
"You simply should not read too much into this for the federal election. We've still got eight months to go… I still think Angela Merkel is still going to be Chancellor of Germany in twelve months' time, " Alastair Newton, senior political analyst at Nomura said on CNBC Europe's "Squawk Box".
On Sunday, Merkel's conservative coalition lost regional elections in Lower Saxony, one of the country's most populous states. The narrow one-seat victory for the center-left Social Democrats (SPD) and Greens in one of the country's bellwether states has revived the opposition's hopes for defeating Merkel in September's national election.
Merkel's Christian Democratic Union (CDU) has now lost its majority in the upper house of the German parliament, the Bundesrat, which could make it harder for Merkel to introduce policies in the federal parliament without compromising with opposition parties, Newton told CNBC.
So far, Merkel's euro zone policy decisions have only been constrained by public opinion and Germany's constitutional court, which rejected calls in September to block the European permanent bailout fund called the European Stability Mechanism (ESM), but imposed conditions on Germany's contribution to the fund.
"What this says to me is that she [Merkel] is going to go even more slowly on anything policy-wise to try and fix the euro zone crisis, even slower than she's going already," Newton said on Monday. "As far as the politicians are concerned, as opposed to the ECB, I think addressing the euro zone crisis is on hold until after the German elections in September."
Merkel is still ahead in national polls, enjoying 65 percent support, according to German polling agency, Forschungsgruppe Wahlen. Support has remained strong as voters have endorsed her handling of the euro zone debt crisis and Greece's bailout. Merkel is hoping to secure a third term as leader in September.
"Headlines are going to be quite excitable today and markets are going to take it apart, but my bottom line is to put it aside, and let's get through the next 8 months until the federal elections," Newton said.
The Next Eight Months
In early trading on Monday, the German Dax was up 34 points at 7,736, showing that the election result hadn't worried investors. But Germany's economic performance has been shaky of late, with
Professor Paul de Grauwe, a leading scholar of European political economy at the London School of Economics (LSE), told CNBC that the economy's performance has been lackluster because Merkel had pursued a balanced budget policy in order to lower debt.