My first overnight business trip to Germany was completely unexpected. I was travelling to a conference in Sao Paulo flying Lufthansa ex Heathrow transiting in Frankfurt. The flight from LHR was delayed and I missed the connecting flight to Brazil. The Lufthansa customer service desk was understandably busy and there was a major conference in the city meaning hotel beds were in short supply and at a premium. While it is understandable that there is a genuine shortage of hotel accommodation in Frankfurt (especially coming out of Covid and the related reductions in capacity), it also revealed a deeper problem linked to demographics: hotel operators, like so many others in the hospitality sector are struggling to fill vacancies with a limited pool of available labour.
On my next trip, 12 months ago, I attended Euro CIS a leading retail technology trade show staged at the Dusseldorf Messe. Again, for similar reasons, Dusseldorf flights and rooms were hard to find so I flew to Cologne and travelled by train then tram to the exhibition park. During the journey, I noticed a few things including the state of the train itself – before I had ever travelled to Switzerland or Germany, I had a strong conviction that the trains would be super modern and always punctual – sadly on Germany’s Deutsche Bahn, state owned service, neither turned out to be the case….on this occasion.
Meanwhile, from my window seat, one could spot the industrial heritage and coal fired power stations releasing vast plumes of carbon emissions into the atmosphere. With the disappearance of Russian gas as a source of cheap energy, the decision to switch off its nuclear power generators seems strange – instead, aiming to rely on renewables (60% of energy mix but what if it’s not sunny or dead calm?) and fossil fuels (40%). Besides domestic customers, it is also hard to imagine how high costs are beneficial to the hugely important manufacturing industries in Germany, including automotive, chemicals and other high energy consumption processes.
These problems are not unique to Germany, sadly they are all too familiar across the UK and the European continent. The election of 2025 was therefore highly expected and necessary to provide a clear mandate for political parties to make critical policy decisions – bringing us to last Sunday 23rd February and the results of the latest federal election.
With the preliminary results in, the conservative CDU/CSU has won the election with 28.6% (24.2% in 2021) of the votes followed by the right leaning AFD with 20.8% (10.4%). Previous success of the SPD in 2021 was wiped out with only 16.4% of votes in 2025 (25.7%) – the environmental party (Grünen) with 11.6% (14.7%) and liberal FDP at 4.3% (11.4%).
Voters in Germany have used this election to send a different signal than in 2021 with social and environmental parties losing significant support. Meanwhile, the thorny issue of immigration control has enabled the AFD to become the second largest party in the German Bundestag. However, due to the lack of a single party with a clear voting majority, the most important question for the future political direction over the next few weeks is who will actually form the next government?
Another “GroKo” (big coalition) is feasible i.e. a stitch up between CDU/CSU and SPD. Due to the allocation of seats, this coalition would represent 328 votes, a small majority (316 seats needed) and a previously tested political partnership in the Bundestag. There are however some important differences between the parties to iron out, including how to tackle some of the largest political issues of the country including investments into infrastructure, stabilisation of social systems, transformation of the energy grid towards renewable energy, immigration and integration efforts. Besides these specific issues, there is also a question mark about political allies, Germany’s/Europe’s reliance on continued American NATO support and how Europe wants to strengthen and maintain its military presence on the world stage.
Considering the election results, an important factor affecting all of the above will be the oft-mentioned debt ceiling (“Schuldenbremse”, debt brake), currently restricting the country’s ability to raise additional financing by limiting the annual deficit to no more than 0.35% of GDP. It has often been at the centre of heated discussions, but as part of the German constitution it would take a 66% majority to remove or alter this fiscal rule. With the results of the election, the next coalition would not be able to muster this level of support and instead rely either on left leaning LINKE, environmental Grünen or the right leaning AFD – all of whom would certainly levy a heavy price for their support.
Over the coming weeks, we can expect negotiations to take place between CDU/CSU and SPD attempting to form the next government – although this would be more of a utilitarian relationship instead of a true alignment. Meanwhile, the smaller parties will surely position themselves tactically to make the most of their seats during the next 4 years.
In any case, Germany as well as the rest of Europe, have some significant challenges ahead of them so a strong and focused political leadership with common values and goals would clearly be beneficial.
With special thanks to Felix Finkler, Associate Director Newbrook Capital Solutions, for his valuable insight and collaboration producing this Insights article.