Germany’s political landscape witnessed a significant shift following the recent federal election, with the center-right Christian Democratic Union (CDU) and its sister party, the Christian Social Union (CSU), poised to return to power. The election marks an end to a prolonged period of political uncertainty.
Preliminary results indicate that the CDU-CSU alliance secured 28.6% of the votes, positioning them ahead of the far-right Alternative for Germany (AfD), which garnered 20.8%. Meanwhile, the center-left Social Democratic Party (SPD) came in third with 16.4%. Friedrich Merz, the CDU-CSU’s chancellor candidate, is likely to succeed Olaf Scholz as Germany’s next chancellor after the collapse of the SPD-led coalition late last year.
Friedrich Merz acknowledged the well-coordinated efforts of the CDU and CSU in his remarks following the exit polls. “We have won it because the CDU and CSU worked well together and we prepared very, very well for this election and also for taking over governing responsibility,” he stated as supporters celebrated the alliance’s victory.
The results pave the way for the formation of a coalition government, a process that may involve weeks of negotiation. A two-party coalition between the CDU-CSU and the SPD is considered the most feasible path forward, although a three-party coalition including the Greens remains a possibility. Merz has already ruled out any collaboration with the AfD.
On the economic front, Germany’s new government faces a series of challenges. The country’s economic performance has been under scrutiny, with debates surrounding the ‘debt brake’ policy—a constitutional fiscal measure that restricts government borrowing. Economists are exploring how a CDU-CSU-led government might address these economic hurdles, particularly concerning fiscal reform.
Germany’s geopolitical role, especially in the context of the ongoing conflict in Ukraine and trade tensions with the United States, adds to the complexity of the situation. The CDU-CSU’s potential economic policies, including possible changes to the debt brake, require careful consideration to balance the centrists’ inability to reach a two-thirds majority without fringe party cooperation.
Despite the political landscape’s challenges, investors and markets hope for a period of stability. Strategists note that the election reflects an anti-establishment trend, yet Germany’s voter turnout reached 82.5%, the highest in decades.
Looking ahead, economists anticipate that the new coalition might implement pro-growth reforms to support businesses and rationalize immigration policy. While populist parties might attempt to block constitutional amendments, there is cautious optimism about potential fiscal policy adjustments.
Germany’s political shift ushers in a new era of governance with the CDU-CSU alliance at the helm. As the country confronts economic and geopolitical challenges, the leadership of Friedrich Merz will be pivotal in restoring confidence and guiding Europe’s largest economy.
