New German Coalition Is A Relief For Businesses

Last updated: 13 June 2023 Views: 2400
New German Coalition Is A Relief For Businesses

Angela Merkel looks set to form a coalition government just days after ruling it out, in the latest surprise move since her narrow election win in September.

Merkel won 33% of the vote as part of her CDU/CSU party, while former allies the SPD received only 20%. However, the plurality of parties in Germany meant this was still not enough for the CDU to form a majority government.

Merkel and SPD leader Martin Schulz are now due to meet this week for informal talks, with a view to forming a government in January. Much is likely to ride on the consensus from the SPD’s annual conference, which begins on December 4th.

The CDU and SPD had previously shared power in a grand coalition, only the third such arrangement since World War 2. But the emergence of far-right populist party Alternative For Germany (AfD) - becoming the country’s third largest party with nearly 13% of the vote - ate into the CDU and SPD’s share.

Both the CDU and SPD were initially unwilling to form another coalition. Critics on both sides felt that the two parties had become too difficult to distinguish during their power sharing tenure, a failure that was driven home by their tepid pre-election debate.

The centre-left SPD had previously been seen as more socially liberal, and a moderating influence on the centre-right CDU. However, the latter’s stance on many keystone social issues has softened in recent years, most notably with the accession of gay marriage earlier in 2017.

Related article: Why a Hard Brexit is good news for France and Germany

The collapse of initial coalition talks between the CDU, left-wing Greens and right-wing FDP has seemingly left few other options. Both parties are said to be uneasy about the prospect of another election, fearing voter fatigue and further gains for AfD.

Perhaps most importantly, a CDU/SPD coalition would offer stability for Germany in a period of significant global turmoil. There had been fears that new elections or extended talks could cause ‘months of instability’ in Germany, threatening its strong economic growth. Exports and investment are all rising, with the country’s overall economic growth hitting a six-year high.

Germany is also seen as a moderating force in Brexit talks. Some fear that a weakened Germany would lead to a harder Brexit, and greater economic fallout across the Eurozone. As an export-driven economy, Germany is reliant on the strength of both its neighbours and the value of the Euro, which is currently riding high on the Pound and Dollar.

Related article: Can a Business-Friendly Budget Save Britain from Brexit?

However, the failure to win outright is broadly seen as damaging to Germany’s Chancellor, on both the domestic and international stage. Many see new French President Emmanuel Macron as a future EU figurehead, and France will surely look to press its claim on EU banking reform.

The new coalition will hope for a strong and productive term, riding out the concerns of Germany’s industrial heartlands. The eastern state of Saxony, where the AfD was the dominant party, also had the lowest increase in migration by foreign workers and refugees.

We’ll endeavour to keep you up-to-date on the latest news from Germany. For any further information about company formation in Germany - or anywhere else in Europe - including tax advice, accountancy, business bank accounts, VAT and visas, please call us on 0033 (0)1 53 57 49 10 or email us from our contact page and we’ll be happy to help.

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