Germany has officially moved past a period of political instability with the center-right CDU-CSU coalition securing victory in the German Federal Election held on February 23, 2025. The preliminary results, announced on February 24, confirm that CDU-CSU, led by Friedrich Merz, won 28.6% of the vote, signaling a leadership change from outgoing Chancellor Olaf Scholz of the Social Democratic Party (SPD).

This closely watched election saw a record voter turnout of 82.5%, the highest since 1990. The right-wing Alternative for Germany (AfD) placed second with 20.8%, while the SPD trailed at 16.4%, reflecting a decline in public confidence in Scholz’s administration.

For Merz and his party, the victory represents an opportunity to restore stability after months of political turbulence. Following the election results, Merz acknowledged the public’s desire for strong leadership, stating, “This election has shown that Germans want strong, decisive leadership. CDU-CSU is ready to deliver.”

However, winning the election marks just the beginning. With no outright majority, CDU-CSU now faces the challenge of forming a coalition government. Analysts suggest possible coalition setups, including a two-party CDU-SPD alliance or a three-party agreement involving the Greens. Merz, however, has ruled out any cooperation with the far-right AfD, despite its rising political influence.

A CDU-SPD coalition could focus on addressing economic stagnation and promoting pro-business reforms. Holger Schmieding, chief economist at Berenberg Bank, noted, “A CDU-SPD coalition would likely focus on regulatory reforms to stimulate investments and job growth.”

Economically, Germany faces pressing issues such as slow growth, recession concerns, and debates over the country’s “debt brake” policy, which restricts government borrowing. These challenges will significantly shape Germany’s economic policy and its role within Europe.

Internationally, Germany’s new leadership will also have to navigate geopolitical uncertainties. The ongoing Ukraine war and potential trade tensions with the U.S. under President Donald Trump could further complicate economic and diplomatic decision-making.

Financial markets responded cautiously but positively to the election outcome. Germany’s DAX stock index opened 0.4% higher, signaling investor optimism regarding reduced political uncertainty. However, some analysts warned of rising anti-establishment sentiment, as more voters expressed support for both far-right and left-wing parties.

Meanwhile, discussions about Germany’s fiscal policy are expected to intensify. Economists at Barclays predict that fiscal reforms may advance despite ongoing political challenges, particularly concerning the “debt brake” rule. With the left-wing Die Linke party advocating for adjustments, modifications to the borrowing policy could be more likely than before.

As coalition talks continue, the coming weeks will be critical in shaping Germany’s political and economic future under Friedrich Merz. While the CDU-CSU victory signifies a return to conservative leadership, addressing economic uncertainties and navigating global challenges will require decisive action.

With Europe and the world watching closely, the new government’s policies on economic recovery, fiscal management, and foreign relations will play a crucial role in defining Germany’s future direction.