Yesterday’s federal elections in Germany came amidst a rapidly evolving geopolitical and economic context. The Munich Security Conference was perceived as a ‘wake-up call’ for Europe to no longer rely on the Trump administration for its security and close involvement in negotiations on how to end the war in Ukraine. Germany is also particularly at risk from both US tariffs affecting its exports and competition from subsidised Chinese products. This comes at a time when the country already faces an industrial recession due to high energy prices after the need to replace cheap Russian gas. 

Germany can address the concerns over the US and China only through European solutions; the EU needs an operational German government quickly to strengthen its negotiation power. The expected German chancellor Friedrich Merz from the Christian Democrats (CDU) stated he aims to form a government by Easter to seek to define joint positions with his European counterparts.

Key takeaways and likely shape of new government

  • The far-right Alternative for Germany (AfD) made substantial gains, but the centre held and the Left’s result brought the biggest surprise. 
  • Given the liberal FDP and left-leaning, pro-Russian BSW have failed to meet the 5% threshold to enter the parliament, a “grand coalition” of CDU and Social Democrats (SPD) is the most likely.
  • Interestingly, the centre-left bloc (Social-Democrats, Greens and the Left) has made significant gains since the formal end of the traffic light government, from 30% in polls in November to around 37%.

Migration, the Russian war in Ukraine and the country’s economic situation dominated the election campaign. The future government will need to address energy prices, industrial competitiveness, shortfalls in infrastructure and digitalisation as well as citizens’ concerns over the education and pension systems. A big debate will thus emerge on Germany’s debt brake and how it relates to joint European spending on industry and defence. Any adjustments to the debt brake will also require a two-thirds majority - thus an involvement of the Greens and the Left which won’t be easy to achieve.

Germany’s net-zero transition at times of tight budgets

CDU, SPD and Greens all backed the goal to reach climate neutrality by 2045 which was set back in 2021 in response to a court ruling. However, the plans for how to achieve this goal vary among the parties. For example, the CDU made statements favouring nuclear during the campaign that were strongly opposed by German energy companies due to the potential costs, thus clearly favouring renewable energy. Economic rationality and a tight budget will thus be decisive to guide future German economic policies. 

The coalition talks will be the moment of truth for the new government’s position on: 

  • lowering electricity prices for businesses and households, 
  • the choice of industrial sectors that will receive government support, and 
  • defining concrete measures to reach the 65% climate goal for 2030 and climate neutrality by 2045.

Germany’s role at European level

Over the last years, the “German vote” has caused irritation and delays in European policymaking on the net-zero transition. The new coalition is thus advised to position itself early on the key debates that are already happening at the EU level. The future German government will need to swiftly position itself on:

  • Investments and policies as part of the Clean Industrial Deal to strengthen European competitiveness and boost cleantech manufacturing,
  • The 2040 climate target which will likely be adopted in June to submit a national climate plan to the UN before the next international climate summit in Brazil (COP30),
  • Priorities for the next EU budget that will be published this summer, based on a major reform that European Commission President von der Leyen promotes,
  • Its relationship with China at a time when the Transatlantic relationship weakens.

 

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