Germany's options: A tough leadership test awaits the new chancellor

The preliminary results from snap elections in Germany, Europe’s largest economy, could have a profound effect on the European Union, its relations with the United States, immigration policies, and climate change. The Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), have emerged as the largest party in the 630-seat Bundestag. But it is the strong showing of the Alternative für Deutschland (AfD) that surpassed expectations — it clinched 21 per cent of the vote, nearly doubling its vote share from the last election in 2021. Though the centre-right CDU-CSU is still short of a majority, Friedrich Merz, chancellor in waiting, and the mainstream parties in the Bundestag have pledged to a create a “firewall” against the anti-migrant, pro-Kremlin AfD, which recently won endorsements from US President Donald Trump’s cost-cutting czar Elon Musk, and Vice-President J D Vance. Coalition talks have begun. Assuming that the AfD is kept out of government, the alt-right party, with the second-largest vote share in the Bundestag, and an overwhelming dominance of the rust belt of the east, is likely to have a significant influence on the government’s policy agenda. In some respects, it may find itself in closer understanding with the CDU than other parties.

 

To start with the CDU under Mr Merz, a former chair of the German subsidiary of US asset management advisor BlackRock, with distinctly conservative social views, is unlikely to offer a continuance of Angela Merkel’s broadly liberal stance. One of the reasons for its strong showing in this election lies in its strict anti-immigration agenda, which, in fact, controversially won AfD support in the last Parliament. Beyond that, Mr Merz, 69, the oldest chancellor to take charge since Konrad Adenauer, the first chancellor of the newly formed Federal Republic (who took charge in 1949 at age 73), has resolved to prepare Europe for a future without US support for the North Atlantic Treaty Organization (Nato), given Mr Trump’s proclivities in this respect, and a significant expansion of support for Ukraine. He has already held discussions with France and Britain, Europe’s two nuclear powers, on the possibility of extending nuclear security to Germany. He has spoken of policies to scale up Germany’s defence industry, including reversing his predecessor Olaf Scholz’s block on sending long-range Taurus cruise missiles to Ukraine for attacks on Russia. He has resolved to significantly up the Defence Budget above the agreed upon 2 per cent of gross domestic product. On climate change, though he has spoken of consistently using renewable energy, his base within the CDU, the European People’s Party, a transnational grouping, is likely to push back on a broader renewable agenda.

 

Much of Mr Merz’s leadership of Europe, however, depends on how fast he can revive Germany’s economy. The German economy shrank in 2024 and is forecast to contract again in 2025. Once the envy of Europe, high energy, labour costs, and an ageing population are eroding its high-tech manufacturing base. The economy’s dependence on exports, especially to a slowing China, has also acted as a drag on the economy. Mr Merz wants to link Germany to high-growth hotspots such as Mexico or Southeast Asia and is looking at a French-German axis to make inroads into South American markets via a deal with Mercosur. In a uniquely turbulent moment in European geopolitics, Germany may be facing its toughest test yet.