ANALYSIS: German Election results in a CDU/CSU victory with Merz likely to be Chancellor of a Grand coalition; however, a blocking-minority exists

RESULTS

• Prelim. Final Results: CDU/CSU 28.6%, AFD 20.8%, SPD 16.4%, Greens 11.6%, Die Linke 8.8%, FDP 4.3% & BSW 4.9%.


• The above results mean that FDP and BSW are below the 5% threshold and as such will not be entering the Bundestag. However, given their proximity to the 5% threshold BSW will almost certainly call for a recount.

As such, the seat distribution is

• CDU/CSU: 208


• AfD: 152


• SPD: 120


• Greens: 85


• Die Linke: 64


• SSW: 1

COALITION OPTIONS

• Given this, CDU/CSU leader Merz will become the next Chancellor. However, he will need to form a coalition to govern. Mathematically, the options are a Grand coalition (CDU/CSU + SPD), Kenya (CDU/CSU + SPD + Greens) or a Midnight coalition (CDU/CSU + AfD).


• All parties have committed to the firewall against far-right AfD, which means that a Midnight coalition or any other combination with AfD is not expected to occur. Note, AfD’s Weidel has said that she is open to being in the coalition but expected-Chancellor Merz has made clear this is not an option.


• As such, the most likely outcome is a Grand coalition between CDU/CSU and SPD. Such a combination would give them a slim majority of 328/630 seats (316 required). CDU’s Merz has said he wants to form a government as soon as possible, ideally by Easter and expects talks to begin in the next few days. SPD’s Scholz (outgoing Chancellor) has taken responsibility for their poor result and as such has indicated he will take no part in the new government; Lars Klingbell is currently positioning as head of the SPD though current Defence Minister Boris Pistorius is a potential candidate.


• CDU’s Merz has said he sees no obstacles against a coalition with SPD, despite the tough election campaign. SPD's Scholz has spoken in favour of forming a government quickly, but will not be negotiating for the party. More pertinently, SPD co-leader Esken has pushed back on the notion that they must be in the government, and made clear that the burden lies with CDU/CSU to begin talks and find compromises between the parties.


• Alternatively, a Kenya coalition between CDU/CSU, SPD & Greens is possible and would control 413/630 seats in the Bundestag. However, CSU leader Soder has said that they do not need the Greens to govern, saying “one thing is relatively clear, it (the government) will work without the Greens". Despite this, the Greens have indicated they would be open to entering such a coalition.

TWO-THIRDS MAJORITY

• Constitutional reform requires two-thirds majority of the Bundestag, i.e. 421/630 seats, as such a Grand coalition is almost 100 seats shy while a Kenya deal is very close but still falls short with 413 seats. Concerningly, a blocking-minority of AfD and Die Linke exists as they control 216/630 seats. This means that the parties could, while they are on opposite sides of the political spectrum, work to prevent any CDU/CSU-lead coalition from undertaking constitutional reform i.e. debt brake reform.


• AfD has made it clear it is against debt brake reform, and as such Merz is unlikely to be able to convince them to support any such measure.


• Die Linke strongly opposes defence spending increases; however, it is possible that Merz could gather their support for reform contingent on it being for internal investment purposes or similar. As such, while the support of Die Linke to pass such reform may be required, it will come at a cost for Merz and potentially defence names, Ukraine and broader geopolitical relations i.e. US relations, given the calls from officials for increased defence spending.

ALTERNATIVE FISCAL OPTIONS

• Debt brake reform contingent on the funding not being spent on defence is an option, if Merz can court the support of Die Linke. Note, AfD’s Weidel has stated that CDU/CSU working with Die Linke would result in another election much sooner than expected and an even stronger showing for the right in such an election.


• Alternatively, joint EU borrowing could be used, Goldman Sachs reminds that if the funding is dispersed via a grant then it does not violate existing debt brake rules.


• Finally, the debt brake does have an escape clause which would allow it to be breached for that fiscal period if the government rules that an external event has sufficiently pressured domestic finances to warrant its use. However, this would then be subject to scrutiny by the German Constitutional Court and could potentially be overturned.

NEXT STEPS

• Coalition talks are expected to begin this week. CDU’s Merz is expected to reach out to the SPD to begin them, though it remains somewhat unclear as to who their negotiator will be. Given the above remarks from co-leader Esken it is clear that the SPD feels it is in a position of power, particularly as the CSU has essentially ruled out a Kenya coalition. As such, we await to see what concessions Merz is willing to give to the SPD for their support; Politico writes that SPD’s Pistorius, current Defence Minister, is considered a “given” for a government position.


• While Merz has said he ideally wants a functioning government by Easter that is somewhat unlikely given the tense election campaign and political differences between the groups. Historically, it has taken several weeks/months for Germany to form a working coalition. For reference, the last coalition took around six months to form, a timeframe which was regarded as relatively quick.

24 Feb 2025 - 07:35- EnergyResearch Sheet- Source: Newsquawk