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19 February 2025, Berlin: Visitors stroll past the German flag in the dome of the Bundestag.
As Germany embarks on a new political journey following last weekend’s federal elections, a familiar sense of nostalgia permeates the air in Berlin. The center-right coalition, comprising the Christian Democratic Union (CDU) and its Bavarian counterpart, the Christian Social Union (CSU), secured 28.6% of the total votes in the recent election. The far-right Alternative for Germany (AfD) followed closely behind with 20.8%, while the center-left Social Democratic Party (SPD) garnered 16.4%, as reported by preliminary results from the Federal Returning Officer.
These results will be confirmed Monday, but it appears the CDU-CSU’s Friedrich Merz is poised to become Germany’s next chancellor, replacing the SPD’s Olaf Scholz after the latter’s three-party coalition disintegrated late last year.
The CDU-CSU comes with a wealth of governance experience, having managed several “grand coalitions” throughout the past century. As they prepare for a new coalition — potentially with the SPD — the Greens remain a possible partner, though they may be less likely due to the political landscape.
The new government faces pressing challenges, including a sluggish economy and the pressing need for increased domestic spending. Much of this rests on the ability of Germany’s lawmakers to reform the restrictive debt-limiting rule known as the “debt brake.”
Moreover, international relations add another layer of complexity, particularly concerning U.S. President Donald Trump’s threat of imposing trade tariffs, which could further impact Germany’s struggling automotive industry.
Despite the hurdles that lie ahead, there is cautious optimism among political, economic, and business leaders regarding the potential for positive changes under a new administration that may reinvigorate the faltering economy.
Likely next Chancellor Friedrich Merz:
Defeated SPD leader Olaf Scholz:
“This has been a difficult election outcome for the Social Democratic Party. It reflects a significant defeat, and I must take responsibility for our results,” Scholz remarked at the SPD headquarters following the election.
Carsten Brzeski, Global Head of Macro, ING Research:
“Negotiating a new coalition is likely to be intricate,” Brzeski told CNBC’s Annette Weisbach. “We seem to have only one viable path forward, which is another grand coalition. The SPD will find itself in a challenging position given their historically poor results.”
“There may be some short-term support, tax relief, and investment initiatives. Nonetheless, the critical question remains whether changes to the debt brake will be achievable with the upcoming parliament configuration,” he cautioned.
Siemens Energy Chairman Joe Kaeser:
Siemens Energy’s Chairman Joe Kaeser discussed the formidable challenges awaiting the new government and the urgency for a long-term strategic plan. He expressed to CNBC that “this is essentially a restructuring scenario for Germany,” emphasizing the need for a comprehensive “2030 agenda” in key areas, including the economy, infrastructure, energy, education, and governmental reforms.
“Confidence in government institutions is wavering, and this uncertainty has driven some voters toward the AfD,” Kaeser added.
Arnd Franz, CEO of Mahle:
“Swift action is imperative,” stated Franz, pushing for the new German government to urgently establish a clear roadmap to rejuvenate Europe’s economy following the election. He specified that Germany’s manufacturing sector urgently requires changes concerning taxation, energy costs, and labor market flexibility.
U.S. President Donald Trump:
“It appears the conservative party in Germany has secured a significant win in this highly anticipated election,” President Trump noted in a post on his social media platform. “Just like the USA, the citizens of Germany have grown weary of ineffective policies, particularly concerning energy and immigration.”
John Emerson, former U.S. Ambassador to Germany:
“This is positive news for Germany,” said Emerson, who is aligned with Friedrich Merz. He interpreted Merz’s statements about prioritizing European strength as a serious push towards increasing Germany’s autonomy from the U.S., especially in terms of defense capabilities.
Alicia Garcia Herrero, Economist at Bruegel:
According to Herrero, the future trade and tariff relationships with the U.S. will have profound implications for Germany. “European leaders are recognizing the necessity for greater unity, and Merz exemplifies this newfound awareness,” she concluded, hinting at the need for a stronger EU military stance, which may require a reevaluation of the debt brake policy.
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