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Supporters brandishing signs that read “Chancellor” and “Merz” gathered during the final campaign rally of Germany’s Christian Democratic Union (CDU) in Munich on February 22, 2025.
The conservative alliance of the CDU and its sister party, the Christian Social Union (CSU), is poised to regain leadership in Germany following the federal election held on Sunday, signaling an end to a period marked by political instability within the capital.
According to preliminary results from the Federal Returning Officer, the center-right CDU-CSU coalition garnered 28.6% of the votes, positioning them ahead of the far-right Alternative for Germany (AfD), which secured 20.8%. The center-left Social Democratic Party (SPD) came third with 16.4%.
With these results expected to be officially confirmed later on Monday, Friedrich Merz, the CDU-CSU candidate, is likely to be appointed as Germany’s next chancellor, succeeding the SPD’s Olaf Scholz after his coalition government unraveled late last year.
“Our success stems from the effective collaboration between the CDU and CSU, and the thorough preparation we conducted ahead of the election and our governance,” Merz remarked on Sunday as exit polls indicated his coalition’s victory.
Friedrich Merz, who is also the CDU federal chairman, participated in the “Quadrell” television round during the Bundestag election campaign.
The victory for this conservative alliance minimizes some of the uncertainty that has plagued Europe’s largest economy, although negotiations to form a coalition government could extend for several weeks.
The most plausible scenario suggests a two-party coalition between the CDU-CSU and SPD, a historical partnership in German politics, yet a three-party coalition involving the CDU-CSU, the SPD, and the Greens could also materialize.
Merz has firmly dismissed any potential coalition with the AfD, which achieved its strongest electoral performance to date.
“Merz has a clear mandate to establish a new government,” stated David McAllister, a CDU politician and European Parliament member, during an interview with CNBC on Monday. “I have known him for many years, and I trust him completely. I hope he can restore confidence in Germany, which is his primary task, and I wish him great success in this endeavor.”
Navigating Challenges Ahead
The early response from European markets following the election result has been fairly subdued, although Germany’s DAX stock index opened approximately 0.4% higher on Monday.
Despite this slight uptick, the new government in Germany faces several pressing issues. Continued political divides in Berlin have been viewed as an unwelcome distraction for investors who express concern over the need for Germany to navigate numerous challenges, including a sluggish economy heavily reliant on exports and the automotive sector.
The surge in the AfD’s popularity reflects broader societal debates surrounding immigration and integration that have become increasingly contentious.
Germany’s position within European geopolitics also poses significant questions, especially with the ongoing conflict in Ukraine and potential trade tensions exacerbated by U.S. policies under President Donald Trump.
As of February 18, 2025, Volkswagen ID.7 electric vehicles were on display at the company’s electric fleet lead plant in Emden, Germany.
Economists are assessing the implications of a CDU-CSU-led government for Germany’s economy and the prospects for fiscal reform, particularly following extensive debates about the “debt brake” policy enshrined in the German constitution, which limits governmental borrowing.
Market analysts from Deutsche Bank observed that while the election result could alleviate some of the volatility surrounding coalition discussions, it still underscores a persistent anti-establishment trend in Germany and across Europe.
The electoral outcome signifies the lowest vote share for Germany’s two major parties ever, even as voter turnout reached its highest level since 1990 at 82.5%. This positioning leaves the centrist parties short of a two-thirds constitutional majority, with the CDU/CSU, SPD, and Greens cumulatively holding just under 66% of parliamentary seats. Consequently, any reform of the debt brake would necessitate support from smaller parties, which, while achievable, would involve considerable political compromise.
This fiscal stance has been a recurring source of contention in German politics, as parties debate whether the debt brake encourages responsible financial management or stifles economic growth and investment—critical factors for a nation that has been on the brink of recession for several months.
‘Less Bad News’ as a Turning Point
Holger Schmieding, chief economist at Berenberg Bank, offered an optimistic view, stating, “The good news is that Germany will have a new government capable of overcoming a period of significant political uncertainty once its agenda is set.”
Schmieding anticipates a two-party coalition between the CDU/CSU and the SPD, which could initiate pro-growth reforms aimed at reducing regulatory and tax burdens on businesses, and implement a more systematic approach to immigration and energy policy. While he acknowledged potential roadblocks from populist factions like the AfD and Die Linke, he noted the latter’s willingness to consider reforms of the debt brake.
Analysts from Barclays Cross-Asset Research highlighted that, irrespective of their majority, Die Linke’s willingness to support some reforms presents an opportunity for the new coalition to navigate fiscal adjustments, increasing the likelihood that a government led by the CDU and CSU will enact reforms that ease fiscal constraints.
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