Germany: A New but Hampered Government
The German election delivered few surprises with the electorate swinging even more clearly away from the political middle ground. It clearly means that many difficult decisions lie ahead with questions over the effectiveness of the likely new government. The result is only likely to inflame US contempt for matters German, especially as new Chancellor Merz and his CDU/CSU party have underscored a refusal to work with the right-wing AfD, the latter having attracted US Republican interest. In addition, while a relatively stable coalition (with the centre-left SPD) looks likely, there are still many policy differences between the two. More notably, the two parties combined (and even if the damaged Greens were included) would not have enough to overcome the two-thirds needed parliamentary majority to alter the so-called debt rule without which carrying out much needed fiscal boost to infrastructure and/or major defence initiatives will be difficult. All of which makes Germany very much in the firing line for more criticism from the US and ensuing trade sanctions, something that Merz implicitly acknowledged is suggesting a need to achieve independence from the US.
Figure 1: The New Parliament
Source: The Federal Returning Officer – parliament is 630 seats
The highly accepted importance of this election was evident in the fact that voter turnout at 84% was the highest since German reunification in 1990, according to exit poll data, this possibly also with the electorate seeking to rebuff US accusations that Germany was not allowing democracy to prosper. But while the right wing AfD were the main winners in terms of seats won (Figure 1), all other parties have promised to shun them either in terms of parliamentary y action and/or shaping policy, alienated by its Nazi-type slogans, calls to end sanctions on Russia and demands mass deportations of migrants. This is notable as the Trump administration has openly courted the AfD and has criticised Germany’s mainstream politicians for refusing to co-operate with it. Thus even though new Chancellor Merz in terms of low tax and spending has much in common with Trump, there are likely to be continued if not deeper divides with the US over and beyond what seems to be Trump’s continued memory of being patronised by previous chancellor Merkel.
The other major issue is over fiscal scope. The two parties likely to form the next government, the CDU/CSU with the SPD as the junior partner combined (and even if the damaged Greens were included) would not have enough to overcome the two-thirds needed parliamentary majority to alter the so-called debt rule without which carrying out much needed fiscal boost to infrastructure and/or major defence initiatives will be difficult. Indeed, the AfD and Die Linke (The Left) won enough seats to block changes to the “debt brake” that limits German government borrowing, and may be wary also of allowing the creation of a special off-budget fund.
Merz has vowed to move quickly and avoid protracted coalition talks. But this may still take months as the two parties wrangle over domestic issues such as social welfare spending, taxation and migration. The election result provides no grounds for altering out outlook seeing continued economic stagnation and with downside risks