German election preview: Aiming at a grand reset
- 13 February 2025 (10 min read)
KEY POINTS
A much-awaited restart
Germany holds snap elections on 23 February - nine months ahead of schedule, following the collapse of Chancellor Olaf Scholz's ‘traffic light’ coalition with the Greens and Free Democratic Party (FDP) in November 2024.
Germany has endured a reality of no economic growth for the past four years. Expansion expectations are low given the reduced potential growth estimates from official institutions. Furthermore, the economy is highly vulnerable to any upcoming trade tariff disruptions. Germany requires a strong government to quickly implement a new set of policies to revive its short- and medium-term economic prospects.
Current polling suggests Christian Democratic Union (CDU) leader Friedrich Merz will become the next Chancellor. In this paper we review the German electoral system, assessing the different routes Merz may be able to take to form the future government coalition. Besides needing a stable absolute majority in the Bundestag, he will need to achieve the 66% majority required in Parliament to reform the constitutionally enshrined debt brake rule, should he elect to do so. Finally, we look at political parties’ proposals to restart growth.
Policy change appears to be on the horizon in Germany, but lengthy discussions ahead will come hand-in-hand with significant structural headwinds, making any decent economic rebound unlikely in the short term.
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