Germany’s DAX index fell 1.5% on Tuesday after Friedrich Merz failed to win Bundestag approval as chancellor, triggering uncertainty in the markets and raising concerns about political stability in Europe’s largest economy.
Market Reacts to Merz’s Bundestag Defeat
German stocks and bonds responded sharply after Merz, leader of the CDU/CSU bloc, failed to secure the required 316 votes in the Bundestag. The DAX 40 index dropped 1.5% to 22,924 points, while the Euro Stoxx 50 fell 1.1%. Benchmark 10-year bund yields climbed to 2.54%, the highest level since April. The euro declined from $1.1350 to $1.1310.
Implications for Germany’s Political and Economic Stability
This was the first postwar instance of a coalition-backed candidate failing to gain Bundestag approval. Merz had negotiated a coalition with the Social Democrats, yet fell short by six votes. As markets digest this political upset, Germany’s already fragile economy faces further headwinds.
Experts Warn of Economic Uncertainty
“His setback adds fresh uncertainty to Germany’s export-driven economy, which is already under pressure from shifting US trade policies.”
– Holger Zschäpitz, Welt
“Germany voted for change. Politicians decided to keep everything unchanged. Now, the coalition of industry and economic destruction cannot even agree to vote a chancellor.”
– Daniel Lacalle, Tressis
What Comes Next for Merz and the Bundestag?
Under German law, another vote must occur within two weeks. If that also fails, a third vote with a simple majority may follow. If still unresolved, the president could dissolve parliament and call for new elections.
Economic Agenda in Limbo
Merz had proposed a €500 billion infrastructure plan, unrestricted defense funding, and closer alignment with Ukraine. These proposals, closely watched by markets, are now on hold. A planned diplomatic tour to Paris and Warsaw has also been postponed indefinitely.
Industrial Sector Bears the Brunt
Shares of leading German manufacturers fell sharply. Rheinmetall AG, a defense sector leader, dropped 2%. Siemens, MTU Aero Engines, Porsche AG, BASF, Infineon, and Daimler Truck all declined about 2.5%. Only Fresenius Medical Care and Symrise posted gains, up 3.8% and 0.2% respectively.
Final Insight
As investors seek clarity, Germany’s political paralysis raises urgent questions about the resilience of its economic leadership at a time of mounting geopolitical and industrial pressure.
