What next for Germany? Its future after the 2025 federal election

Germany held federal elections on 23 February 2025 after the country’s ruling coalition – consisting of the Social Democrats (SPD), the Greens, and the Free Democratic Party (FDP) – collapsed in November 2024 when the FDP moved into opposition. In the February 2025 elections, all three parties recorded losses: the SPD recorded its worst result in 138 years, and the FDP failed to win a single seat in parliament with its 4.3 percent. Despite winning the most votes at 28.5 percent, the conservative alliance of the Christian Democratic Union and Christian Social Union (CDU/CSU) fell short of their goal of at least 30 percent of votes.

Perhaps Germany’s far-right Alternative für Deutschland (AfD) is the closest to a winner, having doubled its share since the last election and securing 20.8 percent of votes. The Left might be considered a runner-up in this regard, having increased its share of votes from 4.9 percent to 8.8 percent following a strong social media campaign.

What does the CDU/CSU want to achieve in the next five years?

Most importantly, the CDU/CSU want to focus on growth and investment in the economy. They plan to achieve this through policies such as lowering corporate taxes to 25 percent and eliminating red tape. Another notable policy point is reforming energy politics, which could possibly entail the return to nuclear energy together with increased investment in renewable energy, as well as more emissions trading. The CDU/CSU is expected to hold its course on immigration; this would include tighter borders and a tougher asylum process – and in some cases deportation to Syria and Afghanistan. Changes in social welfare and digitisation to accelerate scientific and industrial innovation are also understood to be towards the top of the agenda.

Who can the CDU/CSU work with to achieve their goal?

Having failed to win 50 percent of votes, the CDU/CSU will need to form a coalition government. A two-party coalition with the SPD is the current frontrunner as it would secure more than the 316 seats needed to push legislation through parliament and as it would only require negotiating with one other party – thereby reducing the risk of the government collapsing, as happened in November 2024. Several high-ranking CDU/CSU politicians – including Jens Spahn, former Minister for Health, and Markus Söder, head of the CSU – announced publicly that they would prefer to see the Greens in the opposition. The CDU/CSU is aiming to form a coalition government by Easter.

Yet forming a coalition with the SPD may not be straightforward as the two parties will likely need to compromise on some of their central policy points. The SPD still feels disappointment towards the CDU/CSU for the latter’s willingness to propose a law on immigration with support from the AfD at the end of January this year. Immigration is one of several points of difference that could break a grand coalition of CDU/CSU and SPD. Other dividing issues include: the SPD’s proposed suspension of the debt brake, which limits the German budget deficit to 0.35 percent of GDP and caused the last government to collapse; the two parties’ diverging assessments of the country’s economic situation; and their differing views of pension stabilisation and tax relief. The two parties will likely work to find common ground over the coming weeks. It will be interesting to see if President Frank-Walter Steinmeier, who was previously an active member of the SPD and served as Germany’s foreign minister (2005-2009; 2013-2017), will intervene again to urge the SPD to form a grand coalition with the CDU/CSU, as he did in 2017.

Although the AfD came second and a coalition government of CDU/CSU and AfD would secure far more than the requisite 316 seats, Friedrich Merz, chancellor candidate for the CDU, has emphatically ruled this out. This upholds a longstanding tradition of the CDU/CSU and SPD, who, since World War Two, have refused to form coalition governments with parties considered to be extreme – the so-called firewall. The AfD lost an appeal against being categorised as an extremist far-right party in May 2024.

Although the AfD came second and a coalition government of CDU/CSU and AfD would secure far more than the requisite 316 seats, Friedrich Merz, chancellor candidate for the CDU, has emphatically ruled this out”

Alice Weidel, chancellor candidate for the AfD, commented in return that the German voters clearly voted for “black and blue” – meaning a coalition of CDU/CSU and AfD – and that she believes a coalition between the other parties would fail in the next two years, an outcome that would be to the AfD’s advantage.

Key issues to watch:

• Merz is aiming to form a coalition by Easter (20 April). The longer this process takes – given the CDU/CSU and SPD’s notable differences – the greater the uncertainty as to what policy changes will be implemented, in particular as pertains to the economy, corporate taxation, defence spending, and social welfare. This uncertainty, which effectively began with the collapse of the last government in November 2024, will affect investor sentiment.
• The CDU/CSU has signalled that it will not backtrack on progress that Germany has made in the green transition. It plans to expand investment in renewable energy sources and energy storage, and has renewed its commitment to emissions trading. The latter in particular suggests that Germany’s stance on ESG topics, including transparency around emissions, is unlikely to change.
• Merz has vowed to reverse Germany’s declining influence within Europe – a result of the last government expending significant resources on seeking compromise domestically. He has criticised US President Donald Trump for his recent remarks on Ukraine and opined that Europe needs to strengthen its defences in the event that NATO weakens under Trump 2.0. He also intends to continue German support for Ukraine in the form of military equipment. These policies, which will likely require significant investment, appear to be at odds with his plan to cut corporate tax and not to make major changes to the debt brake. They might cause tension within his party, in addition to being a bone of contention with the SPD. By the time a coalition agreement is reached, it may be too late for Merz to implement this plan.
• The AfD has announced it plans to remain outspoken in parliament. Its strong performance in this month’s election should be seen as a barometer for popular sentiment in the country, and in particular in eastern Germany and among young voters, where it performed well. As coalition talks drag on, it is possible that the AfD will ramp up its rhetoric and that the firewall that has kept the AfD out of government might weaken as the CDU/CSU continues its move towards the right in a bid to keep the AfD on-side for the purpose of pushing legislation through parliament. We may also see protests on the streets as voters become frustrated with the apparent lack of progress towards forming a government. In the medium to long term, it is not inconceivable that the states that overwhelmingly supported the AfD – broadly all in eastern Germany – will make calls for independence. The CDU/CSU will have to prioritise maintaining unity – which could come at the cost of upholding the firewall.
• Sahra Wagenknecht from the left- populist Alliance Sahra Wagenknecht (BSW) is considering legal action against the election. With 4.97 percent, the BSW narrowly failed to enter the German parliament. As per Wagenknecht and the BSW, the party is only 13,400 voters short of their entry into parliament. They now argue that since many Germans living abroad could not cast their vote - due to short deadlines caused by the snap election - the overall result was impacted. If the BSW had entered parliament, a grand coalition would not be possible. 
• The leaders of the SPD, Greens, and FDP have announced their retirement from frontline politics in response to their parties’ major losses, cementing German politics’ move to the right.