What the German election results mean for economic policy

The Christian Democrats (CDU) and their Bavarian sister party CSU clearly won yesterday's general election, even though their share of votes fell short of expectations at 28.6% (2021: 24.1%). The members of the former ruling coalition had a disastrous election night. While the Greens' losses of a good three percentage points (11.6% after 14.8%) were still limited, the Social Democrats (SPD) (16.4% after 25.7%) literally plummeted, the worst result in post-World War II Germany. With 4.3%, the Liberals (FDP) will no longer be represented in the Bundestag.

The parties on the left and right of the political spectrum were clearly strengthened. The right-wing AfD doubled its share of the vote to 20.8% (2021: 10.3%) and the Left Party also increased significantly from 4.9% to 8.8%. The new left-wing party Bündnis Sahra Wagenknecht (BSW), a split-off from the Left Party, fell just short of the 5% threshold with 4.972%.

Now that the FDP and BSW have failed to reach the five per cent threshold according to the provisional final result, the election winner, the CDU/CSU under Friedrich Merz, will probably form a government with the SPD. These parties together have a narrow majority of 328 votes in the new Bundestag (630 seats in total). However, the AfD (which has doubled its share of the vote) and the Left Party have more than a third of the seats in the Bundestag and therefore a blocking minority in the event of a possible amendment to the Basic Law, the German Constitution.

Where will the money for the Bundeswehr and infrastructure come from?

A major challenge for a new federal government will be to mobilize more money for the armed forces and infrastructure. In order to increase defense spending from the current 2% to 4% of GDP, for example, the federal government would have to cut non-defense spending by a quarter if this is not to be financed by additional debt. This would hardly be politically feasible, even if there is considerable scope for savings with regard to social spending or the often inefficient climate policy. But setting up a new shadow budget (‘special fund’) for the Bundeswehr would require a two-thirds majority, which the CDU/CSU and SPD do not have, even with the support of the Greens. At best, the Left Party's approval would be conceivable if the government were to combine a special fund for the Bundeswehr with a special fund for higher infrastructure spending or generally relax the Constitutional debt brake, for example by excluding infrastructure investments from the debt rule. If this does not succeed, the only remaining option from a political perspective would probably be to suspend the debt brake with reference to an ‘extraordinary emergency situation’ that is beyond the ‘control of the state’ and would ‘significantly impair the state's financial situation’ (Article 109, paragraph 3 of the Basic Law, the Constitution). This would be possible with a simple majority, although the CDU/CSU has always been opposed to suspending the debt brake and it is also not certain that this would stand up to scrutiny by the Federal Constitutional Court.

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