Major European indices are closing mostly higher.
- German DAX, +0.6%
- France’s CAC, -0.78%
- UK’s FTSE 100, unchanged
- Spain’s Ibex +0.47%
- Italy’s FTSE MIB +0.13%
IN Germany’s election over the weekend, Friedrich Merz secured a clear victory in the German election, positioning himself to become the next chancellor. His Christian Democratic Union (CDU) won 28.5% of the vote, while Chancellor Olaf Scholz’s Social Democrats (SPD) suffered their worst result (16.4%) since the 19th century. The far-right Alternative for Germany (AfD) gained 20.8%, reflecting a broader nationalist shift in Europe.
Merz now faces the challenge of forming a government quickly, with coalition talks expected to conclude by early April, much faster than the usual process.
Germany’s stagnant economy, which has barely grown since before the pandemic and may shrink for a third consecutive year, presents a major challenge. Merz has pledged to cut immigration to curb AfD’s rising influence. On the geopolitical front, Europe is under pressure to respond to Trump’s tariff threats and his Ukraine peace proposals, which European leaders fear could favor Moscow. As the U.S. moves closer to Russia, Merz has suggested discussions with France and the U.K. on extending their nuclear deterrents to Germany should U.S. security commitments in Europe decline.
Merz’s ability to quickly build a coalition and address economic and security concerns will be critical in shaping Europe’s future amid increasing global uncertainty. However, Merz has said he would under no circumstance form a ruling alliance with the AfD.
The AfD achieved its highest-ever result in a national election, nearly doubling its 2021 score, though it fell just short of recent opinion polls. Pollsters attribute the gains to public dissatisfaction with the outgoing government, economic recession, high immigration, costly green policies, and recent violent crimes by refugees. The CDU also benefited from these trends, sharing some common ground with the AfD on immigration and economic issues. However, Merz’s conservatives reject the AfD’s anti-EU stance, calls to lift sanctions on Russia, and efforts to downplay Holocaust remembrance, making cooperation unlikely.
The Trump administration and Elon Musk has been publically stating that Vice President Vance suggested that the U.S. might reduce its military presence in Germany if the country didn’t change its speech laws, an AfD position.
IN a debate prior to the election Merz said “I’m not letting an American vice president tell me whom I should be talking to in Germany,” in regard to a coalition.
Let those games begin.