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The Federal Republic of Germany is Europe’s largest economy and an essential ally to the United States; so when Germans vote—as they did on September 26—the world pays attention.
The challenge today is to figure out what it all means.
For the first time in 16 years, Angela Merkel was no longer a candidate for chancellor when Germans went to the polls. Her absence meant it would be a tight race between her center-right party (CDU/CSU) and the center-left social democrats (SPD) led by Finance Minister Olaf Scholz. Indeed, it was close, but in the end the SPD bested the CDU/CSU by less than 2% of the vote, and Scholz will apparently have the opportunity to form a new government.
The landscape has shifted significantly since the last elections in 2017. Neither of the main parties won a majority outright, meaning a coalition government must be formed. Two other parties—the Greens and the Liberal Democrats (FDP)—stand to be key players, and we are likely to see the first 3-party coalition in modern Germany’s history. But given divergent views among the parties, it will take weeks, or more likely months, to cobble together an effective governing majority within the German parliament (Bundestag).
Why It Matters
Germany is the world’s fourth largest economy and a key trade and investment partner for the United States. Bilateral trade between our countries totals more than $250 billion annually. Two-way investment clocks in around $520 billion, and those investments support the jobs of more than 1.5 million workers—including 870,000 here in the United States.
Germany plays a pivotal role in in setting the EU policy and regulatory agenda, a fact that lends urgency to the formation of a new government in Berlin. There are vital debates happening in Europe—around the transatlantic relationship, climate change, the digitization of the global economy, and Europe’s fast-evolving relationship with China—and we need Germany at the table.
What Does the Future Hold?
U.S. companies operating in and trading with Germany can continue to expect it to be a productive, predictable, and profitable place to do business.
All the major parties in Germany support close transatlantic ties and a strong European Union. Germany will continue to champion trade and close-knit international supply chains. There is also widespread support for an ambitious climate policy across the German political spectrum.
On the digital agenda, we also expect continuity, which is not altogether a good thing. The current government has tacitly supported some of the more discriminatory digital policies emanating from Brussels. Olaf Scholz has indicated he supports working with the U.S. on tech issues, though he’s also embraced the idea of increased European capacity.
It remains to be seen whether this will mean new market access barriers—in the form of, perhaps, the EU’s proposed Digital Markets Act—for innovative U.S. firms. The Greens wants to invest heavily in broadband and other digital infrastructure—but whether and how U.S. companies will be able to bid on these projects remains unclear. While any eventual government is unlikely to embrace a full-on protectionist approach to the digital economy, it remains an issue that bears watching.
The chief risk for the transatlantic relationship in the coming months is that Germany will be inwardly focused as its leaders work to form a new government.
As transatlantic tensions persist—as seen in French protests at the U.S. nuclear sub deal with Australia and the AUKUS pact the two announced with the UK—Berlin’s steadying influence is sorely needed. The new U.S.-EU Trade and Technology Council, which met in Pittsburgh, requires the active support of major European economies like Germany if the two sides are to achieve their ambitions.