Europe | Germany: Three unknowns and one certainty

Summary

With the German general elections just two weeks away, the leader of the center-right CDU-CSU coalition, Friedrich Merz, is the likely winner.

Key points

• Key points:
• But it is still uncertain what government will be formed, what measures it will take against the current recession in Germany and what role it will play in addressing the multiple challenges facing Europe.
• A centrist coalition with the Greens or the Social Democrats, the most likely options, would involve a fiscal relaxation agreement that Merz seems willing to accept in exchange for some structural reforms.
• A second unknown is the type of reforms the new government will be willing to adopt, as the German economic crisis is more structural than cyclical.
• European policy requires a lot from German leadership. The EU faces growing fiscal difficulties, rising protectionist tendencies and stagnant productivity, which calls for a stronger single market, smart deregulation and directing innovation toward productive applications.

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