Tuesday, 25 February 2025 Reading time : 2 minutes

The German stock market has responded to the election result with gains: the blue-chip index Dax was up 0.6% on Monday, bucking the European market trend. The MDax, which tracks mid-cap stocks, was up 1.5%.

Although the official final results are still pending, the Christian Democrats (CDU/CSU) have clearly won the election with around 28.5% of the vote. However, it is also clear that they cannot govern alone. During the course of Monday it became clear that initial talks between the CDU and SPD could take place, as the two parties together hold the majority of seats in the Bundestag. A coalition between these two parties is not only the most likely scenario at the moment, but also one of the few possibilities to form a parliamentary majority without the AfD. This gives the SPD some bargaining power, despite its historically poor showing in Sunday's election.

Despite the difficult position, the likely future chancellor, Friedrich Merz, wants to avoid a week-long stalemate and bring the coalition negotiations to a swift conclusion. "The world is not waiting for us, things change quickly," he said at a press conference on Monday, reiterating that the new government should be in place by Easter.

The list of challenges facing the next government is long: the weak economy, crumbling infrastructure, a reform of the debt brake and migration policy are all issues that have already preoccupied the collapsed coalition. At the same time, US President Donald Trump's recent overtures to Russia are testing the long-standing transatlantic partnership. It is by no means certain that the CDU/CSU and SPD will be able to find common ground on these and other issues.

For now, however, the prospect of an imminent change in policy seems to be dominating sentiment on the German stock market.

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