Germany prepares for a pivotal federal election scheduled for February 23, which is poised to shape the nation's economic future amid ongoing challenges. The electoral outcome is likely to result in a coalition government, with the conservative CDU/CSU and either the Social Democrats (SPD) or the Greens as potential partners. Polls indicate the CDU/CSU as the leading party with approximately 30% support, followed by the SPD with 20%, and the Greens with 15%. As Germany's economy grapples with structural difficulties, including an aging population and increased competition from China, the policy directions of the new government will be crucial.
The CDU/CSU, led by Friedrich Merz, stands at the forefront with a significant lead in pre-election polls. Their economic agenda includes a proposal to lower income and corporate taxes by nearly €100 billion annually. This plan aims to stimulate economic growth and competitiveness, addressing some of the challenges posed by reduced Russian gas supplies and global market pressures.
The SPD, under the leadership of Olaf Scholz, holds second place in voter support. Their campaign emphasizes social justice and economic revitalization, proposing a €100 billion public investment fund. Additionally, they advocate for raising the minimum wage from €12 to €15 and offering a 10% tax rebate for businesses that invest in Germany. These measures are designed to boost domestic employment and infrastructure development.
The Greens, led by Annalena Baerbock, are also strong contenders in the election landscape. With a focus on sustainable development and climate policies, they could play a crucial role in forming a 'Black-Green' coalition with the CDU/CSU. Despite their 15% support in polls, their influence in shaping Germany's environmental and energy policies remains significant.
The AfD, while securing 10% support in polls, is unlikely to join any coalition due to ideological differences with other major parties. Meanwhile, smaller parties such as the FDP, the Left, and BSW risk not meeting the 5% threshold required for parliamentary representation. This scenario could further limit coalition possibilities, making both a 'Grand Coalition' and a 'Black-Green' coalition more feasible despite poll numbers not adding up to 50%.
A 'Grand Coalition' between CDU/CSU and SPD appears to be the most probable outcome, as reflected in their combined 44% polling average. Such a coalition is expected to adopt a pro-European and pro-business agenda, which could be pivotal in addressing Germany's two-year economic contraction and rising unemployment rates.
One critical aspect of the next government's policy agenda will be the potential reform of Germany's 'debt brake'. Current estimates suggest a 50% probability of reforming this fiscal rule, which could allow for an increase in the structural deficit from 0.35% to 1.50% through special treatment of investments. This change would provide greater fiscal flexibility to address economic challenges and fund necessary infrastructure projects.