German lower house election: Centrist coalition government is about to be formed
2025-02-26
■ The results of the German lower house elections were basically in line with expectations, and the financial market reacted calmly
■ The recent focus is on the timing of the formation of the coalition government and the "debt brake" issue, and the concerns about the
Depreciation of the euro has eased. On February 23, Germany held the Bundestag (lower house) election and completed the vote counting on the same day. According to the preliminary results of the election management committee, the Christian Democratic Social Union (CDU/CSU), which was once the largest opposition party, became the largest party with 28.5% of the votes. The far-right party "Alternative for Germany (AFD)" ranked second with 20.8%. The previous ruling party, the center-left party "German Social Democratic Party (SPD)", received 16.4% of the votes, and the "Green Party" also fell to 11.6%. In the financial market, the euro rose at the opening of Monday, but it fell back during the European trading session. As of the time of writing this article, no obvious trend has formed. The market generally believes that the result of the CDU/CSU-led coalition government with the SPD is within expectations and is currently awaiting follow-up developments.
According to preliminary results, the CDU/CSU and the SPD won a total of 328 seats, exceeding the majority threshold of 316 seats. This result is partly because the Free Democratic Party (FDP), one of the former coalition parties, did not reach the 5% threshold and lost its seats since the 2013 German lower house election. This factor has eased the concerns of the financial market to a certain extent. On the other hand, the rise of the AFD mainly reflects the decline in the support rate of the former coalition government. However, since March 2021, the AFD has been listed as a monitoring target by the German Federal Office for the Protection of the Constitution. Since there are major obstacles for the CDU/CSU to form an alliance with the AFD, it is more likely to choose to form a coalition government with the SPD, which is also centrist. It is worth noting that this is not the first time that the CDU/CSU and the SPD have formed a coalition government. For example, after the 2017 German lower house election, the fourth Merkel government was jointly formed by the two parties. The then vice-chancellor was former Prime Minister Scholz, and the current European Commission President von der Leyen also served in that government.
The main issues of concern in the near future include: (1) the time of the establishment of the coalition government; and (2) the handling of the "debt brake" policy. The results of this election are not expected to increase fiscal concerns in Germany and the European Union (EU), and the market's previous vigilance against a sharp depreciation of the euro has been significantly alleviated. However, it is necessary to note that: (1) During the fourth Merkel government, although the CDU/CSU and the SPD had already occupied the majority of seats, it still took about half a year to form a government. This time, CDU/CSU leader Merz is expected to serve as prime minister. Considering the development of the situation in Ukraine and the fact that the German economy has been in negative growth for two consecutive quarters, he needs to complete the formation of the government as soon as possible. Merz has stated that he plans to complete the formation of the cabinet by the end of April. (2) In November last year, Merz hinted that the "debt brake" policy stipulated in the German Basic Law (Constitution) might be lifted, but the amendment would require the support of more than two-thirds of the parliament. One of the causes of this election was the disagreement within the previous coalition government on the "debt brake" policy, so this issue may still become an important agenda in the future.
■ The recent focus is on the timing of the formation of the coalition government and the "debt brake" issue, and the concerns about the
Depreciation of the euro has eased. On February 23, Germany held the Bundestag (lower house) election and completed the vote counting on the same day. According to the preliminary results of the election management committee, the Christian Democratic Social Union (CDU/CSU), which was once the largest opposition party, became the largest party with 28.5% of the votes. The far-right party "Alternative for Germany (AFD)" ranked second with 20.8%. The previous ruling party, the center-left party "German Social Democratic Party (SPD)", received 16.4% of the votes, and the "Green Party" also fell to 11.6%. In the financial market, the euro rose at the opening of Monday, but it fell back during the European trading session. As of the time of writing this article, no obvious trend has formed. The market generally believes that the result of the CDU/CSU-led coalition government with the SPD is within expectations and is currently awaiting follow-up developments.
According to preliminary results, the CDU/CSU and the SPD won a total of 328 seats, exceeding the majority threshold of 316 seats. This result is partly because the Free Democratic Party (FDP), one of the former coalition parties, did not reach the 5% threshold and lost its seats since the 2013 German lower house election. This factor has eased the concerns of the financial market to a certain extent. On the other hand, the rise of the AFD mainly reflects the decline in the support rate of the former coalition government. However, since March 2021, the AFD has been listed as a monitoring target by the German Federal Office for the Protection of the Constitution. Since there are major obstacles for the CDU/CSU to form an alliance with the AFD, it is more likely to choose to form a coalition government with the SPD, which is also centrist. It is worth noting that this is not the first time that the CDU/CSU and the SPD have formed a coalition government. For example, after the 2017 German lower house election, the fourth Merkel government was jointly formed by the two parties. The then vice-chancellor was former Prime Minister Scholz, and the current European Commission President von der Leyen also served in that government.
The main issues of concern in the near future include: (1) the time of the establishment of the coalition government; and (2) the handling of the "debt brake" policy. The results of this election are not expected to increase fiscal concerns in Germany and the European Union (EU), and the market's previous vigilance against a sharp depreciation of the euro has been significantly alleviated. However, it is necessary to note that: (1) During the fourth Merkel government, although the CDU/CSU and the SPD had already occupied the majority of seats, it still took about half a year to form a government. This time, CDU/CSU leader Merz is expected to serve as prime minister. Considering the development of the situation in Ukraine and the fact that the German economy has been in negative growth for two consecutive quarters, he needs to complete the formation of the government as soon as possible. Merz has stated that he plans to complete the formation of the cabinet by the end of April. (2) In November last year, Merz hinted that the "debt brake" policy stipulated in the German Basic Law (Constitution) might be lifted, but the amendment would require the support of more than two-thirds of the parliament. One of the causes of this election was the disagreement within the previous coalition government on the "debt brake" policy, so this issue may still become an important agenda in the future.