Insights on the recent German Election

Overview of the German Election

The German election held on February 23, 2025, came at a pivotal time for Europe, which faces new geopolitical, economic and trade challenges.

Friedrich Merz, leader of the Christian Democratic Union (CDU), is set to become the next Chancellor, following a victory that saw the CDU and its CSU sister party secure 28.6% of the votes.

The election also highlighted the rise of the far-right Alternative for Germany (AfD), which garnered 20.8% of the vote, while the Social Democratic Party (SPD)’s share fell to a historic low of 16.4%.

Coalition Formation Challenges

Merz's immediate challenge will be to form a coalition government. With the CDU/CSU needing to partner with other parties to achieve a majority in the Bundestag, negotiations with the SPD are expected to focus on fiscal reforms and domestic policies.

The urgency of these discussions is underscored by the need for a stable government to address pressing issues such as economic stagnation and migration.

Economic Implications

The new government will need to address Germany's economic challenges, including a potential increase in defense spending and the management of public debt.

Merz is already in discussions to approve a special defense budget of up to €200 billion before March 24, which could be passed with the current parliament.

Conclusion

The German election has significant implications for domestic and international policies and for investors. As Merz navigates coalition talks and economic reforms, the focus will be on restoring stability and addressing the concerns of the electorate.