End of the ‘era Merkel’ leaves German politics in unchartered territory
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The 2021 election will push German politics into unchartered territory, with the potential of CDU/CSU returning into opposition for the first time since 2005.
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The Green party will be king-makers in any future governing coalition, opening up the potential for a more relaxed fiscal stance down the line. However, the ‘debt brake’ will still limit expansionary fiscal policies.
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Although we expect the new government to maintain a clear pro-European stance, a European leadership vacuum is opening up with the departure of Angela Merkel. This leaves room for more political uncertainty on the European stage over the coming years.
As the ‘era Angela Merkel’ is drawing to a close, the outcome of Germany’s federal election on the 26 September 2021 will have important implications for economic and fiscal policies for years to come. As the biggest euro area economy, accounting for nearly a third of output, Germany has not only an outsized influence on European growth prospects, but also plays a key role in shaping European policy discussions.
Like no other western democracy Germany has long epitomised the picture of political stability and continuity of leadership in Europe. However, with Merkel’s withdrawal from the political scene, the 2021 election will push German politics into unchartered territory. Increased political fragmentation and the notable rise to popularity of the Green party make it seem likely that political change is in the air.
Change of fortunes
After initialling benefitting from the swift handling of the corona crisis, poll ratings for the conservative CDU/CSU party have tumbled in recent weeks to only 21%. A scandal involving mask procurement, chaotic communication of corona restrictions during the second and third waves, a slow vaccine-rollout as well as bureaucratic hurdles and delays in the payment of support measures for companies have all contributed to the party’s flagging fortunes that culminated in the worst ever election results in state elections in Baden-Württemberg and Rheinland-Pfalz during March.
The Green party has become an earnest rival for the conservatives in their bid to govern. Since 2018, the Green party has overtaken the Social Democrats (SPD) as Germany’s second popular party and polls currently suggest it could even become the biggest party after the election. While the stellar rise of the Green party clearly reflects a growing climate awareness of the public, it is also closely tied with the political demise of the SPD. Disillusioned by its lack of clear profile, internal infightings and a perception of being too close to its coalition partner CDU/CSU, many SPD voters have shifted their support to the Green party instead, which has taken up many of the SPD policy pledges.
Supported by the rising anti-immigrant and anti-establishment mood in Europe, the Alternative für Deutschland party (AfD) became the largest opposition party in the Bundestag in 2017 (receiving 12.6% of the votes), but its poll ratings have since declined, as it remains a political pariah with few chances to influence actual policy making.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
