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What Merkel’s Win Means for Business

What Merkels Win Means for BusinessAngela Merkel may have just secured a fourth term as Germany’s Chancellor, albeit under heavy opposition, but as she looks to form a coalition government, what will this mean for business in Germany and Europe?

Merkel's party - the ruling Christian Democratic Union (CDU) party - secured 33% of the vote, a slightly lower margin than anticipated. Their main rivals, the Socialist Party (SPD), followed up their disappointing TV debate with a postwar low of 20.5%.

Having ruled alongside the CDU for two previous terms, the SPD has opted against another coalition, and will form the official opposition. Critics had observed that the SPD’s alliance with Merkel’s party led to them becoming indistinguishable on key policy issues.

The big news from election day, however, is the performance of Alternative for Germany (AfD). The right-wing anti-establishment party took 12.6% of the vote, and will be the first ‘far right’ party to send delegates to the Bundestag.

Related article: UK General Election - What a Hung Parliament Means for Business

While this marks a major victory for the far right, the party’s leader opted to resign immediately after the election. Frauke Petry’s decision follows months of infighting that had been seen as potentially undermining AfD’s impact, and leaves the party in some disarray.

AfD has surged in popularity over the last few years, pushing discontent among ethnic Germans to the fore. Merkel’s decision to allow 1 million refugees into the country has been cited as a major factor, alongside a perceived ‘liberalisation’ of her centrist party, and the sidelining of other social issues.

AfD is notable for its relative popularity across Germany, although support is strongest in the east. Wealth among supporters is varied, but most class themselves as having a poor economic outlook. Poverty in Germany has risen steadily since the financial crisis, despite an increase in income per head.

Having lost around a million voters, Merkel has vowed to win back people who have been “polarised” by her policies. The Chancellor has not shied away from the public at her campaign appearances, with AfD activists drowning out many speeches with whistles and chants.

Early reactions suggest the election result is a mixed blessing. While the only tenable alliance - a ‘Jamaica coalition’ with the Greens and Free Democratic Party (FDP) - is likely to be a wobbly one, AfD’s success is likely to act as a wake up call.

While Germany is still performing exceptionally well, there are growing concerns about complacency in Europe’s leading economy. Some have suggested that the nation’s car industry is vulnerable to the increasing importance of software, while Germany’s traditional ‘Mittelstand’ of small businesses means it lacks leading corporations.

Related article: Why a 'Hard Brexit' is good news for France and Germany

The involvement of the Greens and FDP may accelerate change in key areas, long neglected by the CDU/SPD coalition. These include harnessing Germany’s car industry to set an electric car switchover deadline, and helping businesses to digitise and cut down on red tape.

Similar to France, Germany’s bureaucracy means its immense potential for business expansion remains somewhat unfulfilled. Germany’s overall ranking in 2017’s Doing Business Report is 17th, but it ranks 114th in the world for Starting a Business.

As well as reducing red tape, critics will hope that the CDU abandons its previously cautious and pragmatic approach to economic matters, and begins to use its trade surplus to stimulate wage growth. With consumer spending already at a record high, businesses should benefit from any attempts to reduce income inequality.

For any further information about setting up a business in Germany, France or elsewhere in Europe - or for tax advice, accountants, VAT services and visas - please call us on 0033 (0)1 53 57 49 10 or email us from our contact page and we’ll be happy to help.

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