The results of Germany’s federal elections on February 23, saw the conservative Union of CDU/CSU, led by Friedrich Merz, secure victory, while the far-right AfD surged to become the second-largest party. Despite the campaign being largely dominated by domestic issues like the economy, immigration, and security—rather than broader EU concerns—this shift in political dynamics carries significant consequences for the EU.
As Europe’s economic powerhouse and most populous country, Germany’s political choices ripple across the continent at a pivotal moment, amid strained relations with the new U.S. administration, prolonged economic recession, China’s expanding influence or the need for unitary response to the war in Ukraine.
To begin with, the election outcome indicates a shift in Germany’s economic policy. Merz has repeatedly criticised the ‘excessive bureaucracy’ in Europe and Germany as an obstacle to prosperity, pledging to boost competitiveness through steps like trimming government expenditure, lowering taxes, and easing regulations. A German government under his leadership could therefore push for greater deregulation and simplification of regulations at EU level – a point that is particularly important for German SMEs and export-orientated industries following a prolonged decline in the countries’ industrial dominance relative to major rivals. As the EU relies on Germany for about 25 % of its GDP, a revitalised economy could enhance the bloc’s standing on the world stage, particularly in critical areas like automotive manufacturing and technology.
Under a CDU-led Government, Germany could also make a decisive contribution to reshaping EU industrial policy, for example by increasing investment in key technologies such as artificial intelligence, renewable energies or promoting EU companies in public procurement (particular in defence). In terms of climate policy, the CDU/CSU under Merz takes a more restrained stance than the Social Democrats (S&D) or Greens, possibly hindering the EU’s climate ambition under the Green Deal. With Merz as the likely chancellor, there may be increased support for technological neutrality within the EU, potentially influencing discussions on energy strategies and the inclusion of various energy sources. Though supportive of clean energy, Merz prioritises economic strength, which might push Germany to oppose stringent EU emissions goals or rules like the Corporate Sustainability Due Diligence Directive if they strain German businesses. Merz has also been critical of ‘misguided decisions’ such as the German nuclear phase-out, indicating that he favours a more practical energy policy. This could encourage the EU to better combine climate protection and economic constraints.
Yet, without a majority, Merz’s Union must negotiate with S&D or Greens, potentially softening its agenda. The Greens, with their unwavering focus on sustainability, might demand accelerated investments in renewable energy and stricter emissions standards, potentially at odds with Merz’s deregulation push. Conversely, the SPD, a stalwart defender of Germany’s welfare state, may fiercely oppose deep cuts to social programmes, prioritising equity over fiscal austerity. These talks, possibly lasting months, risk delaying Germany’s recovery and the EU’s ability to its ability to act cohesively on pressing issues—such as the potential tariffs from the US, advancing the Green Deal, or countering external economic pressures— leaving the bloc vulnerable at a time when decisiveness is paramount.
On trade, a new government under Merz is likely to urge for the expansion of the EU’s ‘strategic autonomy’ as called for by Commission President, Ursula von der Leyen. This could mean that the EU takes tougher action against Chinese trade practices, which is seen as a ‘systemic competitor’, for example through protective instruments or new agreements with other partners such Mercosur in order to reduce dependencies. Merz would also strive for a ‘strategic dialogue’ with the Trump administration, while pushing for the EU to become more independent from the USA and advocating closer cooperation within the EU, particularly in the area of defence. This could entail a change in EU trade policy, with a stronger focus on strengthening the internal market and reducing dependence on external partners.
Nevertheless, the rising popularity of the AfD, despite its exclusion from government, might indirectly push for more protectionist policies, challenging Germany’s traditional reliance on an export-driven, free-trade economy and straining the EU’s efforts to maintain a balance between open trade and safeguarding its domestic markets.
Furthermore, the election results could redefine Germany’s take on financial leeway within the EU. Historically, the CDU has backed stringent budget controls. As the EU grapples with challenges such as defence spending, rising geopolitical tensions, and the shift to a greener economy—all demanding significant funding—Merz’s careful stance on easing fiscal restrictions might shape EU discussions about loosening spending regulations, including the Stability and Growth Pact. In addition, Merz has explicitly opposed the idea of investing into EU competitiveness through ab EU joint borrowing proposal, a key measure of the Draghi report. However, teaming up with the S&D, which pushes for more relaxed rules for investments in next-gen tech and economic upgrades, could pave the way for a middle-ground stance.
To conclude, the success of the CDU/CSU and Merz could steer the EU’s competitiveness policy towards more pragmatism, less regulation and economic robustness, primarily due to Germany’s decisive role in the EU. However, the coalition structure will be decisive: a partnership with the S&D could mitigate the plans and focus on balancing solutions, although the exact direction will depend on the of the coalition dynamics and external developments.