The 2025 German Federal Elections, which occurred on February 23, has shown that Germany made a significant turning point in the country’s landscape, with the election result impacting both politics and financial markets.
The snap election came as a result of the collapse of the coalition government in Germany after Chancellor Olaf Scholz dismissed Finance Minister Christian Linder on November 6, 2024.
Election Results
This election also saw unprecedented gains for the far-right Alternative for Germany (AfD), while the ruling Social Democratic Party (SPD) suffered a significant defeat.
The election’s outcome is expected to have lasting effects on Germany’s domestic policies and role in the European Union. ⁽¹⁾
The conservative Christian Democratic Union, which is also known as the CDU, led by Friedrich Merz, has been successful with its campaign by maintaining 28.6% of the vote, indicating that the CDU has maintained a strong position in the vote and positioning Merz to become the next German Chancellor. ⁽²⁾
The far-right AfD secured second place with 20.4% of the vote, which led to an increase in the party’s presence in the Bundestag, which had 149 seats. This marks the highest support the party has ever received, reflecting growing public dissatisfaction with mainstream political parties. ⁽³⁾
The SPD, under Chancellor Olaf Scholz, faced a devastating loss, securing only 16.3% of the vote, a steep decline compared to previous elections. ⁽⁴⁾
Source: Statista
The chart above shows how many seats each party won.
European officials have criticized Germany’s lack of leadership before the elections. The European Union hopes that Friedrich Merz will take a profound role in solving issues, such as increasing defense spending and supporting Ukraine with ongoing peace talks between the US and Russia. ⁽⁵⁾
Financial Market Impact
Financial markets reacted strongly to the election results. The results boosted the Euro and the DAX. The Euro appreciated on Monday, February 24 by reaching 2-month highs above 1.05, while German stocks opened in positive territory as markets remain optimistic that the result will lead to economic reform and changes in Europe’s largest economy.
The Euro’s positive reaction was due to the AfD’s rise, which was expected. The two-party government was viewed as more stable. Coalition talks might cause fluctuations in EUR/USD, especially regarding the debt rule. The currency pair may remain volatile due to US tariffs and US-Russia peace talks. ⁽⁶⁾
German stocks opened positively on Monday, February 24 on hopes of a market-friendly environment from the new government. The CDU is expected to focus on stable fiscal policies, low corporate taxes, and a simple regulatory environment. These approaches are designed to promote investor confidence by reducing uncertainty in Germany and encouraging higher investment. ⁽⁷⁾
Stocks like BMW, Rheinmetall, Deutsche Bank, and Continental made significant gains on continued infrastructure, defense spending, and softer regulations.
However, the election outcome could impact market sentiment by determining the stability and policy direction of the new government.
If the CDU and AfD struggle to form a stable coalition, this could trigger economic challenges and impact investor confidence, triggering volatility in German markets. Coalition talks could also take weeks or months to finalize. ⁽⁸⁾
Final Thoughts
The German election result marks a new political era for Germany. The coming weeks will be critical as coalition talks between the CDU and AfD will be in motion, essentially shaping Germany’s economic future. Traders should pay close attention to updates from the coalition talks, as new developments could trigger volatility in German stocks and the Euro.
