By Maria Martinez
BERLIN (Reuters) -Germany’s opposition conservatives CDU/CSU won the national election on Sunday, putting leader Friedrich Merz on track to be the next chancellor while the far-right Alternative for Germany (AfD)came in second, its best ever result, projections showed.
Germany’s election results set the stage for protracted coalition talks.
Please see reactions from analysts and economists.
HOLGER SCHMIEDING, CHIEF ECONOMIST AT BERENBERG
“The risk that a three-party coalition will be needed and that the parties from the political fringes get more than one third of seats and could thus jointly block any changes to the German constitution is serious. If so, they could veto any loosening of the debt brake enshrined in the constitution.”
“At a time when it is crucial to raise spending for the military and Ukraine and ease the tax burden for workers and firms, Germany may struggle to find the fiscal space to do so. A failure to ramp up military spending could get Germany into deep trouble with its NATO partners. By infuriating U.S. president Donald Trump, it would also add to the risk of a U.S.-EU trade war.”
JOERG KRAEMER, CHIEF ECONOMIST AT COMMERZBANK
“A future coalition is likely to agree on more funds for infrastructure. That would be good for businesses. But the potential coalition parties have different opinions in many other areas of economic policy – such as tax, social and climate policy. This dampens the prospect of a real restart in economic policy, which would be urgently needed after five years of stagnation.”
FRANZISKA PALMAS, SENIOR EUROPE ECONOMIST AT CAPITAL ECONOMICS
“Regardless of the exact composition of the coalition we would expect the next government to cut income and corporate tax, reduce social benefits and increase defence spending. A debt brake reform has become less likely because the main parties which could have supported it -the CDU, SPD and Greens- might fall short of the two-thirds majority needed to approve it.”
CARSTEN BRZESKI, GLOBAL HEAD OF MACRO AT ING
“Coalition negotiations will be extremely complicated. Assuming that we would get a three-party coalition, it will be the smallest common denominator for the economy. If the three-party coalition includes the FDP, big fiscal stimulus will not be on the agenda. Instead, we will get some tax relief, stricter immigration and more defence spending.”
“However, given that CDU and FDP stand far away from the SPD on economic policies, a three-party coalition runs the risk of more muddling through and more stagnation unless all parties involved realise that this is the last chance to bring change and to prevent the AfD from getting stronger.”
CYRUS DE LA RUBIA, CHIEF ECONOMIST AT HAMBURG COMMERCIAL BANK
“For Germany’s competitiveness, a CDU-SPD coalition could prove positive if the coalition partners approach things courageously. Between the CDU/CSU and the SPD there could be a kind of division of labour. The CDU would enforce a supply-oriented policy. It’s about significant tax cuts for companies, radical bureaucracy reduction, and a reform of the unemployment benefits with the aim of maintaining incentives to work and saving money.”
“The SPD, for its part, would insist on finding ways to invest more in infrastructure. Without more scope for spending, the SPD is unlikely to seriously enter into coalition talks after the traffic light coalition ultimately failed because an agreement could not be reached on the distribution of resources kept scarce by the debt brake.”
“If this task division succeeds – supply policy by the CDU/CSU, demand policy by the SPD – the economic turnaround could really succeed.”
JAN VON GERICH, CHIEF MARKET STRATEGIST AT NORDEA
“The exit polls do not yet offer us definite answers, but it still looks like a CDU/CSU and SPD government is the most likely one. They should be able to form a majority government, which is positive for the outlook. Also positive for sentiment is that the AfD does not appear to have done better than the recent polls suggested.”
“Whether the largest parties will have enough votes to alter the debt brake remains to be seen and is one of the interesting questions that we do not yet have definite answers to.”
FREDERIK DUCROZET, HEAD OF MACROECONOMIC RESEARCH AT PICTET WEALTH MANAGEMENT
“The most market-friendly coalitions are still possible in theory, including the Grand Coalition and the Kenya one with the CDU/CSU, SPD and the Greens.”
“The worst case scenario, at least can be ruled out where, there will be a blocking majority, with the AFD alone, or just them plus another small party. So that at least seems to be mildly positive for market, as far as it stands, just with this big caveat of the uncertainty of the small parties we have to deal with.”
(Reporting by Maria Martinez, Rene Wagner, Dhara Ranasinghe and Yoruk Bahceli, editing by Kirsti Knolle)
