It’s been a tumultuous time in global politics, and this month wasn’t any different. Friedrich Merz (pictured) squeaked into his position as Germany’s new chancellor after failing a first round vote in parliament—the first failed first round vote in the post-War era, and a reflection of the ongoing instability and uncertainty in German politics.
While not a great look for Merz or Germany as a whole, the chancellor has seemingly shrugged it off, and immediately sought to build bridges with other European leaders. What then is the status of one of Europe’s leading economies, and what does this political wrangling say about the strength and security of the German economy?
Political wranglings
The vote to appoint Merz as chancellor comes on the back of federal elections held in February of this year. These took place seven months earlier than intended due to the collapse of the ruling coalition, when previous leader Olaf Scholz removed Finance Minister Christian Lindner from his cabinet, causing his party to leave the coalition. The elections actually saw the CDU/CSU increase its proportion of the vote to 28.5%, but the far-right Alternative for Germany saw theirs double, making them the principal opposition party.
It took until April for the CDU/CSU to sign a coalition agreement, and until May for a vote to be held on who would become chancellor. As the biggest party in the coalition, it was expected that CDU leader Merz would comfortably pass the vote to become chancellor. This was upended when he failed to win in the first round, but was subsequently elected in the second, and has now taken his place as the head of the German government.
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Who exactly caused the first vote to fail isn’t known. As a secret ballot, it could have been any of the party’s allies, from CDU/CSU members themselves, to left-wing elements of the coalition angry at concessions being made to the right, or their lack of influence within the new coalition. Overlooking all of this—and more than keen to take advantage—are Alternative for Germany (AfD), the upstart far-right party which gained over 20% of the vote in the most recent elections.
The rise of Alternative for Germany
The division inside the ruling coalition will aid the AfD, but it may also highlight dissatisfaction with the CDU/CSU’s efforts to combat them. The party’s popularity has seemingly continued to grow in spite of a string of major scandals, including links to neo-Nazi influencers and the use of Nazi slogans. The decision by German intelligence services to classify the party as extremist - the first time this has happened to a party with active MPs - only seems to have galvanised supporters, similar to what appears to be happening with Marine Le Pen in France.
Similar to Le Pen’s National Rally, there’s an open question about the extent to which AfD’s support has peaked. The party has continued to strengthen its base, but is still heavily regional, with all of its seats coming from eastern Germany. This reflects divisions that have never quite been repaired after reunification, which this recent article neatly—though speculatively—summarises as a difference between direct and representative democracy. Whether or not this is true, it’s hard to separate the AfD’s demands for elected presidents and more referendums from some of its more hardline, exclusionary policies.
Alternative for Germany’s economic policies are interesting as far as similar European parties go. Far from the current U.S. playbook of heavy protectionism, AfD have a broadly liberal economic platform, focussing on deregulation and a ‘soft touch’ from central government. However, the party would also look to preserve a competitive minimum wage, and support families through financial incentives, both measures squarely aimed at their working class base.
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More worrying for businesses is the spectre of ‘Dexit’—the prospect of Germany leaving the EU. Alternative for Germany have been relatively quiet on this front, given that some two-thirds of the country are heavily in favour of EU membership. But decoupling Germany from the EU was one of the AfD’s founding principles, and anti-EU sentiment seems to be growing among its supporters. The idea of leaving the EU and bringing back the Deutsche Mark have both been raised by party leaders, though the reality is that this would be some decades away.
Where does Germany go next?
The situation is far from irrecoverable for Merz and his CDU/CSU, but represents a fall from the heady heights of the Merkel government, and lends some uncertainty to Germany’s position at the heart of Europe. Indeed, the former chancellor continues to cast a figurative shadow over her old party. Her appearance in the visitors gallery brought to mind Sir Alex Ferguson sitting in the crowd at Old Trafford, a sometimes unhelpful reminder of past glories.
It also comes at an awkward moment for Germany, and Europe more generally. Merz had been hoping to take a central role in pan-European leadership at a time of increasing desire for cooperation. The issues posed by recent US trade and foreign policy decisions have prompted greater unity between nations, even extending to a warmer relationship between the EU and the UK. A Germany-France alliance would be particularly beneficial to present a united European front, and both Merz and Macron have made overtures towards each other in a bid for a major European ‘reset’.
This isn’t off the cards just because of Merz’s issues at home, though. Another election is far from imminent, and on paper, Merz won’t be treated any differently in Europe to how Keir Starmer might be, given his own party’s domestic issues. This is especially true given Merz’ vast political experience, having entered full-time politics before the fall of the Berlin Wall. But further problems for Merz could serve to distract from this broader mission, and somewhat undermine his legitimacy as part of the spearhead of European politics.
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The blow struck to Merz is far from decisive. While unhelpful, the first-round defeat seems to be more of an aftershock from the recent elections than a statement about what’s to come. It is unlikely to be a destabilising blow to Merz or his party, and doesn’t necessarily reflect a coming political storm. However, it is a statement on the current German political landscape, and the continuing ascendency of Alternative for Germany, who clearly have the established parties worried.
How much the strength of AfD or the weakness of the CDU/CSU says about Germany and its current economic situation is hard to say. While there are certainly issues to be overcome, Merz should have longer than his predecessor to address them, and has the tools and acumen to do so. The new government has a 500 billion euro budget set aside for a massive programme of investments, which is set to modernise the country’s schools, internet, transport, and energy infrastructure, among other things. This should go some way to winning back public support—and providing a strong backbone for both domestic and foreign business investments.
