Germany’s 2025 Federal Election: A New Political Reality Amid Economic Challenges

• The CDU/CSU (Union) emerged as the dominant force in the election, securing a mandate to form the next government.
• A notable outcome was the rise of the AfD (Alternative für Deutschland), which has doubled its vote share and now stands as the second-largest faction in the Bundestag.
• As Germany faces its most significant economic crisis since reunification, the new government inherits a daunting set of challenges.
• Germany, as Europe’s leading economic and industrial powerhouse, cannot afford continued political instability or policy stagnation.

The 2025 German federal election has concluded, with 59.2 million citizens eligible to vote. Voter turnout reached 82.5%, the highest since 1990, underscoring the electorate’s strong engagement in shaping the nation’s future.

Election Results: A Shift in Germany’s Political Landscape

The CDU/CSU (Union) emerged as the dominant force in the election, securing a mandate to form the next government. However, despite clear gains, the result remains the second worst for the Union in post-war history. The SPD (Social Democratic Party) recorded its worst performance since 1949, marking a significant decline.

A notable outcome was the rise of the AfD (Alternative für Deutschland), which has doubled its vote share and now stands as the second-largest faction in the Bundestag. Among smaller parties, the Left Party successfully surpassed the five per cent threshold, while the FDP (Free Democratic Party) failed to do so. The BSW (Sahra Wagenknecht Alliance) barely cleared the threshold with 4.97% of the vote.

Germany’s electoral map is now predominantly black and blue, reflecting the Union and AfD’s regional dominance. The SPD retained control in Bremen and Hamburg, while Berlin leaned towards the Left. The AfD secured victories across all eastern federal states—Thuringia, Saxony-Anhalt, Mecklenburg-Vorpommern, Brandenburg, and Saxony. Meanwhile, the Union maintained its majority across the remaining federal states, with the CDU leading in most areas and the CSU securing Bavaria.

Coalition Prospects: A Complex Negotiation Process

Coalition negotiations present a formidable challenge. Given the political landscape, no major party is willing to collaborate with the AfD. The CSU, under Markus Söder, has also dismissed the possibility of aligning with the Greens. Meanwhile, SPD Chancellor Olaf Scholz ruled out a coalition with the Left during the final televised debate before the election.

Given the distribution of seats, a CDU-SPD grand coalition appears to be the most viable option, though the Greens remain eager to join the government. The final composition of the ruling coalition remains uncertain.

Government Formation Timeline

CDU leader and Chancellor candidate Friedrich Merz has set an ambitious timeline, aiming to finalize a coalition by Easter Sunday (April 20, 2025), within two months of the election. However, historical precedent suggests that government formation can vary significantly in duration:

• The fastest coalition formations occurred in 1969 (Willy Brandt, SPD) and 1983 (Helmut Kohl, CDU), both within 23 days.
• The longest coalition negotiations took place in 2017 when Angela Merkel (CDU) required 171 days to form a government due to failed negotiations with the Greens and FDP.

Economic and Business Implications: Key Challenges for the New Government

As Germany faces its most significant economic crisis since reunification, the new government inherits a daunting set of challenges. Chancellor-designate Friedrich Merz will be tasked with addressing issues that remain unresolved from the Merkel and Scholz administrations.

Key Economic and Policy Priorities:

1. Reviving Economic Growth – Implementing robust policies to stimulate Germany’s faltering economy.
2. Green Transition – Balancing environmental commitments with social and economic stability.
3. Security Policy – Strengthening Germany’s defence posture in response to Russian geopolitical threats.
4. Defence Investments – Significantly increasing military spending, reversing two decades of underinvestment, and enhancing cooperation with European allies.
5. Infrastructure Development – Addressing Germany’s deteriorating public infrastructure and expediting pending projects.
6. Education Reform – Overhauling the education sector to ensure long-term economic competitiveness.
7. Social Security Overhaul – Introducing essential reforms in pensions, healthcare, and elder care.
8. Trade and Global Relations – Advocating for open trade routes and new free trade agreements amidst growing tensions with the United States and China.
9. Reducing Bureaucracy – Streamlining regulatory processes to facilitate skilled labour immigration and boost economic growth.
10. Corporate Taxation Reforms – Addressing the high tax burden that has led many companies to seek better business environments abroad.
11. Industrial Support Measures – Establishing a rescue package for struggling industries hit by the economic downturn.
12. Asylum and Immigration Policies – Formulating strong asylum regulations to address security concerns and public anxieties.

Conclusion: A Crucial Period for Germany’s Future

Germany, as Europe’s leading economic and industrial powerhouse, cannot afford continued political instability or policy stagnation. The Union now faces the monumental task of delivering on its election promises while navigating economic recovery, social cohesion, and geopolitical challenges.

For Friedrich Merz, the road ahead will be anything but smooth. However, with public expectations high and economic pressures mounting, Germany’s new leadership will need to act decisively to restore confidence and ensure long-term stability.

Sidhartha Muraleedharan

Sidhartha Muraleedharan is a Business Owner, Cross-Border Business Consultant, and Political Observer, residing in Germany for the past 16 years. Views expressed are the author’s own.