- 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.
- 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.
- 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.