Germany has witnessed a significant shift in its political spectrum following the federal elections held on February 23, 2025. With unprecedented voter turnout of 83.5%, the conservative CDU/CSU, led by Friedrich Merz, emerged victorious, capturing around 29% of the vote. Meanwhile, the far-right AfD party achieved its best-ever results, nearly doubling its support to approximately 21%, marking the strongest performance for any far-right party since World War II. The Social Democratic Party (SPD), under Olaf Scholz, faced considerable setbacks, garnering only about 16%, and the Greens secured around 13%.
The elections were necessitated by the collapse of the coalition government led by Scholz, which had faced increasing discontent and internal disputes. The political backdrop included concerns over economic stagnation and rising immigration, elements which heavily influenced voter sentiment. With this new electoral mandate, Merz has outlined the urgency of forming a viable government swiftly. “The world outside is not waiting for long talks and coalition negotiations,” he expressed to his supporters, emphasizing his readiness to act quickly.
Scholz’s SPD, meanwhile, received criticism for its lack of popularity, with Matthias Miersch, the party's Secretary, noting, “This election was not lost in the last eight weeks.” His statement suggests deep-seated issues within the party long before voters went to the polls. The high turnout reflects both enthusiasm among conservative voters and widespread frustration with the previous administration.
Meanwhile, Tino Chrupalla, leader of the AfD, revelled in the party’s historic success, claiming, “We have achieved something historic today.” This newfound prominence has stirred debate about potential coalition negotiations. Merz has firmly ruled out any partnership with the AfD, asserting fundamental disagreements on significant issues such as foreign policy and immigration.
Complicities facing the next government include handling the rising concerns of illegal immigration, which both Merz and Scholz have addressed during their respective campaigns. Merz has pushed for stricter immigration laws, and bipartisan push for efficient policies on deportation of illegal immigrants is expected to be high on the new government’s agenda.
The discussions will also likely extend to economic reforms where the anticipated coalition aims to address Germany's significant fiscal challenges. Scholz and the Greens have previously advocated for reforms on the country's public debt limit law, established to manage the national deficit. Merz has expressed caution about increasing public debt, emphasizing the need for fiscal responsibility, which might create friction during coalition talks.
Significant changes to Germany’s approach to green energy, immigration, and fiscal policies could arise as the new government grapples with the aftermath of the election results. The economy has been constrained by structural problems, and substantial reforms will be pivotal for reviving both domestic sentiment and international confidence.
Despite the positive outlook some markets have shown since the election results, expert analysis warns against premature optimism. The political scenario remains fluid, and prolonged negotiations could hamper investors' confidence. “For the euro, the most significant risk is the extension of coalition negotiations,” cautioned Michael Brown from Pepperstone, highlighting the correlation between political uncertainty and currency performance.
The coming weeks will be telling as Merz initiates discussions with prospective coalition partners. With the potential for the new leadership to reshape policies significantly on immigration and fiscal strategies, the effects could ripple through Europe, considering Germany’s pivotal role within the EU and its global partnerships.