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German Election: Expect No Clear Winner

The German election on September 26, 2021 will likely not result in a clear winner, requiring once again extended negotiations to reach a multiparty governing coalition. Though a variety of coalition outcomes are possible, the Christian Democratic-led union appears most likely to form part of the next government, thereby remaining central to German policymaking. This would ensure broad institutional and macroeconomic policy continuity. At the same time, this election marks a shift already underway in the political debate around public spending and climate policies relative to policies that have dominated over the last 16 years under the leadership of Chancellor Merkel

Key highlights include:
• Losses among current coalition parties and gains from Greens will likely result in no clear winner.
• The Christian Democratic-led union will still remain a central force, promising continuity.
• Having to adapt to new challenges, Germany may have already started the post-Merkel era.
• Increasing pressure for more public spending does not necessarily mean less fiscal prudence.

“Regardless of the election winner, we expect continued momentum by German officials around the technological adaptation of key industries, modernization of physical and digital infrastructure, and a greater push towards the use of sustainable energy. Change has already commenced as large COVID-related public spending in 2020 directed considerable resources to accelerate medium-term public investment,” says Jason Graffam Vice President in the Global Sovereign Ratings Group.

“The incoming government may feel under pressure to ease the strict fiscal commitments, but these public resource needs will be met with budget adjustments elsewhere. An emergent coalition government will unlikely have the strong majority necessary to abandon the statutory 'debt break' rule, and DBRS Morningstar expects Germany to maintain its clear commitment to fiscal prudence and debt reduction.”