A confused German election: What does it mean for the German Economy?

On Sunday September 26th Germany went to the polls in the first election of the post-Angela Merkel era. ‘Mutti,’ as she is widely known, has been German Chancellor – and, by definition, Europe’s premier politician – since 2005. But she stepped down as leader of the Christian Democrats (CDU) in 2018 and made it known that she would not seek a fifth term as Chancellor.

Merkel was replaced as leader of the CDU by Armin Laschet, who has served as Minister-President of North Rhine Westphalia since June 2017. His main rival as the next Chancellor was expected to be Olaf Scholz of the Social Democratic Party (SPD) who has served as Vice-Chancellor of Germany and Finance Minister since March 2018.

The CDU and the SPD duly won the biggest percentage of the votes and were projected to take the most seats in the Reichstag. However four other parties also won a significant share of the vote and at the time of writing both Scholz and Laschet are claiming that they will be able to form a government.

The full preliminary result of the election, with the SPD narrowly coming out on top, was as follows:

Social Democrats: 25.7% / 206 seats
Christian Democrats 24.1% / 196 seats
Green Party 14.8% / 118 seats
Free Democrats 11.5% 92 seats
AfD 10.3% 83 / seats
The Left 4.8% / 39 seats

With 735 seats in the Reichstag that means 368 are required to form a government, making a coalition inevitable. The CDU and the SPD could do that, but at the moment both Scholz and Laschet are looking more towards the Greens and the pro-business Free Democrats.

There is, very clearly, going to be a lot of talk and a lot of deals to be done before a government emerges and at this stage a three party coalition looks the most likely. Depending on the party colours, this has given rise to any number of nicknames with the early front-runner the ‘traffic light’ coalition of the SPD (red), the Greens and the Free Democrats (yellow). Replace the red with the black of the CDU and the coalition becomes ‘Jamaica,’ and so it goes on…

At the stage it looks likely that the right-wing Alternative fur Deutschland and the left-wing Die Linke won’t be in whatever coalition finally emerges, although the AfD will be the largest party in the eastern states of Saxony and Thuringia.

Whatever coalition finally ‘wins,’ what’s very clear is that Germany does not need a prolonged period of paralysis. Like the UK it is suffering supply chain problems as it emerges from the pandemic, inflation is rising and the economy – for so long the engine driving Europe – is under pressure as the world places less emphasis on heavy engineering.

This is a story which is likely to develop in the coming days as discussions between the parties take place. We will keep clients updated through the normal communications we send out, but should you have any questions please don’t hesitate to get in touch with us.