The conservative CDU/CSU alliance secured victory in the German Bundestag elections held on Sunday, February 23, 2025. Friedrich Merz, the CDU leader, is now poised to become the next Chancellor of Germany.
The election results revealed that the Christian Democratic Union (CDU) and the Christian Social Union (CSU) alliance led with 28.5% of the vote (Figure 1). Moving forward, it is expected to take approximately two months to form a coalition government, with two potential options: CDU/CSU-SPD and CDU/CSU-SPD-Greens.
Key Issues for the CDU/CSU to Address:
1. Debt Brake
- Merz has signaled his readiness to reform the Debt Brake legislation, which limits public debt and structural budget deficits to 0.35% of GDP. The aim of the reform is to increase investment in essential infrastructure and boost the defense budget.
- However, the CDU/CSU may face challenges in reforming the Debt Brake, as the Alternative für Deutschland (AfD) and Die Linke parties collectively hold 216 seats in the Bundestag (representing 34.3%). This gives them enough power to block any amendments to the Debt Brake law, which requires a two-thirds majority in the parliament.
2. Defense Spending
- The CDU/CSU plans to increase military spending to at least 2% of GDP. In 2023, Germany’s military expenditure was only 1.5% of GDP, falling short of NATO’s threshold.
3. Strategic Independence
- Merz advocates strategic independence, aiming to reduce Germany’s reliance on the US. This could potentially exacerbate tensions between the US and the EU, especially during a period when the US is implementing trade tariffs on several key trading partners.
Financial Market Response:
1. The Euro Strengthened After the Election (Figure 2)
- The euro reached 1.052 (as of 8:00 AM on February 26, Thailand time), appreciating by approximately 0.1% from the previous day’s closing level. This strengthening of the euro may be driven by anticipated government spending increases, which are expected to stimulate the economy.
2. German Stock Market Increased Slightly (Figure 3)
- The market received a boost from the CDU/CSU’s proposed tax cut policies. The DAX index rose by 1% following election day and increased by 5% since the beginning of February. Notably, defense-related stocks, such as Rheinmetall, surged by over 25% since early February, driven by expectations of an increase in the defense budget.
Scan QR Code
Annotation
This research paper is published for general public. It is made up of various sources. Trustworthy, but the company can not authenticate. reliability The information may be changed at any time without prior notice. Data users need to be careful about the use of information. The Company will not be liable to any user or person for any damages arising from such use. The information in this report does not constitute an offer. Or advice on business decisions Anyhow.