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The German federal election, set for September 28, 2025, holds significant implications for both Germany and the broader European Union economy. As Europe’s largest economy and a central figure in EU decision-making, the election’s outcome will influence economic policies and priorities across the continent.

Since the last federal election in 2021, Germany’s political landscape has shifted. Chancellor Olaf Scholz’s “traffic light” coalition, composed of the Social Democratic Party (SPD), the Greens, and the Free Democratic Party (FDP), has struggled to maintain public support. Recent state elections and European Parliament results have shown declining popularity for the governing parties, especially the SPD and Greens. Meanwhile, the opposition Christian Democratic Union (CDU/CSU) has experienced a mild resurgence, while the far-right Alternative for Germany (AfD) has gained ground, particularly in eastern Germany. The emergence of the Sahra Wagenknecht Alliance (BSW), a new left-populist party, further complicates the political environment.

Several key economic issues are likely to dominate the election campaign. Climate and energy policy, particularly the transition to renewable energy and climate protection measures, will remain central topics. The election’s outcome could significantly impact Germany’s approach to these areas, affecting industries and energy prices across the EU. Fiscal policy, including debates on Germany’s strict debt rules and investment in infrastructure and digitalization, will also be crucial, as the results could influence EU-wide discussions on economic governance. Other important topics include labor market and social policies, such as minimum wage, pension reform, and immigration, all of which could have broader effects on EU labor markets. Additionally, the parties’ varying degrees of support for further EU integration could affect Germany’s position in future EU negotiations.

The election results could lead to several scenarios, each with distinct economic implications. A continuation of the current coalition could bring a focus on climate protection and cautious fiscal expansion, offering stability but possibly failing to address demands for deeper economic reforms. A CDU/CSU-led government might pursue more business-friendly policies and a stricter stance on EU fiscal rules, potentially influencing EU-wide debates on economic governance and climate policy. A strong showing by the AfD, while unlikely to bring them into government, could push mainstream parties toward more conservative economic policies, impacting Germany’s stance on EU integration and migration. Alternatively, a grand coalition between the CDU/CSU and SPD might result in compromise policies, potentially slowing down major reforms but offering stability.

The election will have wide-ranging consequences for the EU economy. Germany’s stance on EU fiscal rules and common debt instruments could shift, affecting the EU’s ability to respond to economic challenges. As a leader in EU climate initiatives, changes in German policy could either accelerate or slow the green transition, impacting industries across Europe. Germany’s approach to international trade, particularly with China and the United States, will also influence EU-wide trade strategies. As the Eurozone’s largest economy, German policies will play a crucial role in the stability and strength of the euro, and its domestic economic decisions, particularly regarding investment and fiscal stimulus, will have spillover effects on growth throughout the EU.

The election is also likely to highlight ongoing regional disparities within Germany, especially between eastern and western states. The AfD’s strong performance in the east reflects economic grievances that could shape national economic policies. Addressing these regional imbalances may become a priority for the next government, with potential implications for EU regional development policies.

Overall, the 2025 German federal election arrives at a pivotal moment for both Germany and the European Union. The election’s outcome will shape the direction of economic policies in Germany and influence decisions across the EU on issues ranging from climate change and energy transition to fiscal reform and technological competitiveness.

Written by: Nenad Stekić