Election in Germany: future chancellor Merz wants to strengthen the economy

Whether the CDU/CSU succeeds depends on a number of factors, including how quickly it can line up a coalition partner and align policy agendas.

The Germans chose the composition of their new Bundestag in an election yesterday. The Conservatives (CDU/CSU) led by chancellor candidate Friedrich Merz won with 28.5% of the votes, according to the preliminary results published today. The second strongest force is the right-wing AfD with 20.8%.

"The shift to the right in the German election is similar to results we’ve seen across Europe and in the European Parliament elections last June,” said public policy expert Mark Ferguson of Pinsent Masons . "The CDU/CSU obviously are the big winners, as Merz's party performed almost to expectations, and more importantly avoided the need for a three-party coalition which is important for his chances for developing a unified policy agenda."

Compared to the election from 2021, all parties of the previous government, also known as the traffic light coalition, lost votes. The Social Democrats of current chancellor Olaf Scholz received a historically poor result of 16%. The Liberals with their leader Christian Lindner did not manage to re-enter the Bundestag because they received only 4.3% of the votes and only parties with a result of at minimum 5% can enter the Bundestag.

Many observers see this as the voters' way of settling the score with the highly unpopular traffic light coalition. Last autumn the government coalition of Social Democrats, Liberals and Greens broke up over a dispute between Scholz and Lindner over the country's borrowings, pushing Germany into early elections. The third party in the outgoing government, the Greens, also lost votes significantly. According to the preliminary results, the left wing conservative party Bündnis Sarah Wagenknecht very narrowly failed to clear the 5% hurdle, achieving 4.97% of the votes. With the Liberals and Bündnis Sarah Wagenknecht not entering the parliament, more seats than expected will be allocated to the other parties remaining in the Bundestag. Accordingly, the CDU/CSU with future chancellor Friedrich Merz could enter into a coalition with Scholz's Social Democrats and would not need any further coalition partners to establish a majority in parliament. A coalition with the right-wing AfD would also be possible, but Friedrich Merz ruled this out during the election campaign and again after the first projections became known.

The whole world watched the election in Germany with great interest, since Germany has been unable to fulfill its leading role in Europe since the collapse of the traffic light coalition last autumn, and this in an increasingly tense economic and geopolitical situation.

During the election campaign, Merz's CDU focused for a long time on rebuilding the ailing German economy. Among other things, it wants to lower corporate taxes, reduce bureaucracy and relax working time laws. The German Supply Chain Act is also to be abolished – but a comparable EU law has already been passed and will apply to German businesses.

Merz's party also wants to reduce the high energy costs that are burdening German businesses especially since the beginning of the war in Ukraine. The party wants to achieve this by Germany returning to nuclear power generation. Also, according to the CDU/CSU election manifesto, a new ministry for digitization will be set up to ensure that Germany finally makes progress in the digital transformation.

In geopolitical terms, Friedrich Merz's party is particularly in favor of more generous support for Ukraine, including weapons if necessary. At the same time, Merz wants to strengthen Germany's relationship with the USA and commit to rearmament in line with NATO guidelines.

"For the EU, this development is potentially positive across the bloc as there is broad alignment between Merz and the EU leadership on the competitiveness agenda and the need to stimulate economic growth", Ferguson said. "At the same time, there might be interesting developments ahead on German-US relations: Merz has said the EU needs to do more to stand on its own two feet in the face of a US government which is less aligned with European security issues. The result is positive for Ukraine as Merz has offered support for the country in its fight against Russia and called on Ukraine to be round the table for any peace talks."

However, since Merz's party cannot govern alone, it will have to enter into coalition negotiations with other parties. It remains to be seen how the social democrats – currently the most likely coalition partner – will influence the political goals of the CDU/CSU.

Munich-based Florian von Baum of Pinsent Masons said: “Of course, it needs to be seen how much of the political priorities of the Merz and the CDU/CSU will go into and survive the coalition talks with the Social Democrats, but one thing is clear: that the new government will try do everything to get back into a political leadership position in Europe and the EU and Germany’s voice will again be much more heard in the geopolitical discussion and developments”.

Germany is likely to have a new federal government by Easter – provided that the coalition negotiations go quickly and smoothly.

Ferguson highlighted that there will be a changes in political direction and a range of new policies which will require careful analysis and monitoring: "Businesses operating in Germany can seize the opportunity and engage with the new government: they should focus on horizon scanning and become aware of what the government is planning for their sector and proactively engage in the discussions. Also, a change of government means new people in positions of power. Accordingly, businesses will need to understand who their new key stakeholders are and begin mapping out when and how to engage with them on the legislative files most important to them."