The highlight of the weekend was undoubtedly the result of the elections in the Germany.
Friedrich Merz, leader of the conservative bloc CDU/CSU, is about to assume the position of Chancellor after his party earns 28.5% of the votes – percentage that should translate into an even larger slice in Parliament, as some parties have not reached the Barrier clause.
Now, the natural path points to the formation of a wide coalition with the SPD, which embittered 16.4% of the votes and says goodbye to power after three years under Olaf Scholz’s deleted leadership.
The election not only recorded the largest attendance of the century among German voters, but also marked a historical advance: the meteoric rise of the far-right party AFD, which spiked 20% of the votes and secured second place.
However, the party’s political isolation remains intact, as no other acronym dare not even considering a coalition with them. Result? AFD remains confined to the role of official opposition, barking loudly but without the slightest chance of biting.
What is evident is that Merz will have to ability to balance the internal demands of his party with the necessary concessions to attract and maintain allies.
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After all, those who follow German politics know well: forming a coalition is one thing; Making her work cohesive and lasting is a completely different challenge.
Fonte: ZDF/research group elections
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A political nightmare?
Among the possible scenarios, the market did not receive the ideal outcome – the one that would come with a more expressive victory than the expected of the conservative block CDU/CSU – but is also far from facing a political nightmare.
In practice, the Friedrich Merz bench should ensure an even greater slice of chairs in Parliament, as some subtitles, such as FDP (pro-market liberals) and BSW (far left), did not reach the minimum level of 5% required for representation. That is, less voices to disrupt the legislative process.
From an economic point of view, it is expected that a government led by Merz to break, at least in part, with the fiscal stiffness that has defined German policy in recent decades. After all, the country has fiscal space for this – the famous “luxury of austerity”.
The promise of budgetary stimuli is not just a political whim, but a practical need to revitalize an economy that was the growth engine in Europe, but today range as a rusty gear.
The German industrial base faces a continuous process of deterioration, suffocated by a perfect storm: high energy costs, rising labor expenses and the weight of high interest rates. This combination has corroded the competitiveness of the manufacturing sector, historically the backbone of the German economy.
While the Scholz government was lost in internal disputes and lack of direction, the industry was left to its own luck – and the numbers speak for themselves. It was a disaster…
Given this scenario, Merz’s victory is not exactly a passport to prosperity, but a reminder that the country will need to face complex and interconnected challenges.
Pragmatic solutions will be essential, but the question that hangs in the air is: to what extent will the conservative rhetoric of CDU/CSU allow the necessary concessions to unlock the economy without breaking the promise of tax discipline?
As always, between political theory and economic reality, there is an abyss that no electoral discourse can fill.
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The fire test in today’s Germany
The first major obstacle on Friedrich Merz’s way can ironically come from outside: the trade tariffs proposed by Donald Trump.
The US president has already made it clear that he intends to impose a 25% rate on imported pharmaceutical vehicles, semiconductors and pharmaceutical products, reaching the backbone of the German economy-the powerful automotive industry-and compromising advanced technology exports.
Considering Germany’s structural dependence on foreign trade, this threat is particularly sensitive, demanding from Merz not only diplomatic skill, but an almost acrobatic talent to balance commercial and political interests without compromising the country’s competitiveness.
While trying to dodge Washington’s tariff attacks, Merz will face another equally thorny internal challenge: the energy crisis.
From the interruption of Russian gas supply – until then the foundation of the German energy system – the country has accelerated its transition to renewable sources. However, as usual, green ambition stumbles into practical reality.
The infrastructure is still insufficient to efficiently integrate the energy generated by wind and solar parks with the national network. The result? A fragmented, expensive and unstable energy market that continues to stifle industry and divert investment.
But the true fire test will undoubtedly be the fiscal dilemma.
Germany operates under the rigorous “debt brake” (Debt brake)a constitutional device that limits public indebtedness – maximum symbol of German obsession with austerity. It was precisely the dispute over the budget and spending that led to the collision of the governing coalition last year.
Proposals from the main subtitles imply an additional deficit of 23 billion euros (0.5% of GDP), exceeding the current limit of 0.35%. And here comes the knot: to make this rule more flexible, it would be necessary to support two -thirds of Parliament, which gives the opposition the power to block any attempt to reform with only one third of the chairs.
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In a polarized environment, expecting political consensus is not trivial.
In short, Merz will have to navigate through an economic and political minefield, where each false step can be expensive.
His first decisions will be crucial not only to determine the course of the German economy, but also to test his ability to consolidate stable leadership amid a volatile internal and external scenario.
And considering parliamentary fragmentation and the need to sew a functional coalition, no one should be surprised if negotiations drag for weeks – or even months (maybe until the end of April we have something).
For now, the market reacts with an optimism: the euro has risen and German actions have advanced, packed by the hope of a government more inclined to fiscal flexibility and growth. It remains to be seen if this enthusiasm will resist the inevitable shock with the reality of negotiations in the coming weeks. After all, as always in European politics, between promise and delivery, the path is long.
