Executive Summary
Germany’s snap parliamentary elections on February 23rd, 2025, mark a pivotal moment for both the country’s domestic stability and the broader trajectory of the European Union. Following the collapse of Chancellor Olaf Scholz’s coalition in late 2024, this election is occurring against a backdrop of economic downturn, growing concerns about immigration, and changing global dynamics.
SpecialEurasia, reporting directly from Germany, is closely monitoring developments on the ground to assess the elections’ implications for governance, economic policies, and foreign relations.
The elections will determine the next Bundestag composition and government leadership, shaping Berlin’s fiscal policies, security strategies, and diplomatic posture. Key issues include immigration control, economic revitalisation, the controversial debt brake, and Germany’s strategic orientation within NATO and the EU. Friedrich Merz’s CDU/CSU is favoured to win, though coalition negotiations will decisively shape the next government.
This election has major implications not only domestically but also for the European Union and relations with the United States. Growing populist movements, like the AfD and BSW, might pressure Berlin to shift away from its traditional pro-EU and pro-NATO positions, thus jeopardising military aid to Ukraine and trade with the United States. A stable government is crucial for Germany as it addresses this pivotal moment, ensuring both domestic and global markets remain confident.
German Elections: Political Context and Importance
Germany’s snap federal election on February 23rd, 2025, will determine the composition of the Bundestag and the next government. The election was triggered by the collapse of Chancellor Olaf Scholz’s coalition in November 2024, largely due to disputes over budget policies and the “debt brake” regulation. President Frank-Walter Steinmeier confirmed the election after Scholz lost a confidence vote in January 2025.
This election is particularly significant due to the backdrop of economic struggles and heightened concerns about immigration. A series of deadly attacks, allegedly linked to asylum seekers, has intensified political debate on immigration policies. Additionally, Germany’s economy, the largest in Europe, is in need of revitalisation after years of stagnation, high energy costs, and increasing competition from China.
Key Issues in the Election
- Immigration and Security. Several fatal attacks in recent months, including one in Munich just ten days before the election, and one in Berlin in the last couples of days, have fuelled public demand for stricter asylum policies. The CDU/CSU, FDP, AfD, and BSW advocate tougher immigration rules, while the SPD, Greens, and Die Linke take a more moderate stance.
- Economic Revitalisation. After years of sluggish or declining growth, all major parties recognise the need to boost Germany’s economic competitiveness. The CDU/CSU and FDP prioritise tax cuts, deregulation, and reducing energy costs. The SPD and Greens support targeted public investment and social spending. The AfD and BSW propose alternative approaches, including lifting sanctions on Russia to lower energy prices.
- Foreign Policy and Defence. Most mainstream parties remain committed to supporting Ukraine and strengthening NATO. However, the AfD and BSW advocate closer ties with Russia, opposing military aid to Ukraine and favouring the repair of the Nord Stream gas pipelines.
- Fiscal Policy and the Debt Brake. The controversial debt brake law, which limits the structural budget deficit to 0.35% of GDP, remains a major point of contention. While the CDU/CSU and FDP support keeping it, the SPD and Greens propose loosening it to fund infrastructure, defence, and climate initiatives. A compromise on the debt brake may be necessary for any coalition deal.
Major Candidates for Chancellor
- Friedrich Merz (Christian Democratic Party – CDU/ Christian Social Union in Bavaria – CSU): The Frontrunner. Friedrich Merz, the leader of the Christian Democratic Union (CDU), is the leading candidate. A pro-business conservative, Merz has promised tax cuts, welfare reductions, and stricter immigration policies. He also advocates for stronger European leadership and military aid to Ukraine. However, he has faced criticism for previously relying on AfD votes to push through immigration reforms, leading to backlash from both his party and the public.
- Olaf Scholz (Social Democratic Party – SPD): The Incumbent. Scholz, the current chancellor, faces an uphill battle due to the unpopularity of his government. His tenure was marked by economic difficulties and divisions within the coalition. Despite this, he remains committed to supporting Ukraine and increasing social spending. His party’s proposal includes a “Germany fund” for investment and raising the minimum wage.
- Alice Weidel (Alternative for Germany – AfD): The Rising Populist. Weidel, the first AfD candidate for chancellor, has gained popularity, especially among younger voters on TikTok. Her platform focuses on mass relocations of migrants, opposition to renewable energy, and ending sanctions on Russia. However, no mainstream party is willing to govern with the AfD, limiting her path to power.
- Robert Habeck (Greens): The Environmental Advocate. As vice-chancellor and economy minister, Habeck played a key role in Germany’s energy transition. He supports renewable energy expansion and continued aid for Ukraine but faces criticism over the economic impact of the Green Party’s policies.
- Sahra Wagenknecht (Bündnis Sahra Wagenknecht – BSW): The Left-Wing Populist. Wagenknecht’s newly formed BSW presents itself as an alternative to both the far-right AfD and mainstream parties. She supports strict immigration limits, closer relations with Russia, and opposition to German military aid for Ukraine. However, her party may struggle to cross the 5% threshold required to enter parliament.
Electoral System and Coalition Scenarios
Germany’s mixed-member proportional system gives voters two ballots: one for a direct representative and one for a party. Any party receiving at least 5% of the vote or winning three direct constituencies secures representation in the Bundestag. This election will introduce a smaller Bundestag, reducing its size from 733 to 630 seats.
Possible Coalition Scenarios
- CDU/CSU-led government (most likely): Merz’s CDU/CSU is expected to win around 30% of the vote, making it the largest party. Since he has ruled out working with the AfD, his most viable coalition partners are the SPD or the Greens. A three-party coalition with the FDP could also be possible.
- SPD-led government (less likely): If the SPD, Greens, and FDP together secure enough seats, they could attempt to re-form the previous coalition. However, this is unlikely given their previous collapse.
- Hung Parliament or New Elections: If coalition talks fail, Germany may face another election. Additionally, if the AfD and BSW gain a third of the Bundestag seats, constitutional reforms such as loosening the debt brake could become much harder to pass.
The election campaign has been highly polarised, with mainstream parties clashing with populists. The exclusion of the AfD and BSW from the Munich Security Conference has highlighted their outsider status, further fuelling their anti-establishment appeal.
Economic and Financial Market Impact
The collapse of the previous SPD-Green-FDP coalition was largely driven by budgetary disputes, particularly the enforcement of Germany’s “debt brake,” which limits the structural budget deficit. The FDP strongly defended fiscal restraint, while Chancellor Olaf Scholz (SPD) argued for higher public debt to fund infrastructure and defence. This division was intensified by the Federal Constitutional Court’s ruling in November 2023, which restricted fiscal flexibility, hastening the coalition’s downfall.
With the CDU/CSU expected to lead the next government, economic policy will focus on revitalising Germany’s sluggish growth. The party has campaigned on reducing bureaucracy, cutting energy costs, and lowering corporate taxes to stimulate investment. The FDP shares these priorities, while the SPD and Greens emphasise social spending and environmental initiatives.
One of the central debates in coalition negotiations will be the debt brake. The CDU/CSU and FDP advocate for its retention, though Friedrich Merz has signalled potential flexibility in exchange for cuts to government spending. The SPD and Greens, on the other hand, favour loosening the rule and creating special funds for infrastructure, defence, and climate investments. A compromise is likely, with some economists, including those at the Bundesbank, suggesting adjustments to allow a higher structural deficit.
From a financial market perspective, a CDU/CSU-led government with a pro-business agenda is expected to have a positive effect on investor sentiment. If the debt brake is eased, Bund yields could rise slightly, reflecting higher debt issuance and potential economic growth. However, the impact on Eurozone spreads remains uncertain, as higher German borrowing costs could pressure fiscally weaker member states.
Equity markets, particularly German and European industrial and financial stocks, could benefit from a more growth-oriented policy stance. A stable, business-friendly government could also support broader European equity performance, particularly given ongoing concerns about trade tensions with the US.
Externally, the new Trump administration presents significant risks to Germany’s trade policy. The United States could impose protectionist measures targeting European industries, adding further uncertainty to an already challenging economic landscape. Whether the new German government opts for a more assertive EU trade policy or seeks compromise with Washington will be a crucial determinant of future economic stability.
Foreign Policy and Security
The outcome of the German elections will have profound consequences for the country’s foreign policy, particularly in its handling of China, defence spending, and transatlantic relations.
The new government will have to navigate growing tensions with China as Beijing eyes investments in Germany’s auto sector, particularly in Volkswagen’s factories that are slated for closure. Any Chinese acquisition of these assets would not only impact Germany’s industrial landscape but also pose a strategic dilemma. While Chinese investors view Germany’s auto market as a long-term strategic opportunity, the government will need to decide whether to approve such investments amid broader efforts to reduce economic reliance on China. This decision will test Germany’s ability to balance economic interests with geopolitical considerations, especially as relations with China have grown increasingly fraught.
At the same time, the elections will shape Germany’s approach to European defence spending. Chancellor Olaf Scholz has proposed limited reforms to European fiscal rules, allowing for temporary exceptions on defence expenditure beyond NATO’s 2% GDP requirement. However, opposition from the finance ministry and other European partners, who argue that defence spending should be accommodated within existing budgets, adds complexity to the debate. A consensus on this issue will be critical as Germany redefines its security commitments amid growing instability in Europe.
Compounding these challenges is the return of Donald Trump to the White House. His initial policy signals—such as negotiating with Russia without Ukraine or the EU, expecting European nations to enforce a settlement without US backing, and escalating trade tensions with the EU—cast doubt on the reliability of the US as a security partner. Trump presidency could force Germany to assume greater strategic autonomy, potentially accelerating efforts to strengthen European defence structures independent of US leadership.
If the AfD and BSW secure one-third of Bundestag seats, they could obstruct foreign policy decisions on Russia, the US, and Ukraine, challenging the pro-Atlantic stance of mainstream parties. Their opposition to unconditional support for Ukraine and their push for renewed Russian energy imports—seen as a lifeline for Germany’s struggling industry—could significantly shift the policy landscape.
Conclusion
The German election on February 23rd, 2025, is set to reshape the country’s political landscape, with economic recovery, immigration, and foreign policy as key battlegrounds. The CDU/CSU is poised to win, but coalition negotiations will be complex. The outcome will not only shape Germany’s domestic policies but also impact the broader European economy and financial markets.
Last update: Sunday, February 23rd, 2025 – Time: 14.00 CET
Geopolitical Report ISSN 2785-2598 Volume 51 Issue 11
Author: Silvia Boltuc
*Cover Picture: A German magazine published an article titled “Kann man das noch heilen” (Can this still be cured) underlying doubts and expectation around the federal elections. (Credits: SpecialEurasia)
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