Never seen before! Germany's new prime minister was

Source: Wall Street Insights

Germany's new Chancellor, Friedrich Merz, unexpectedly lost in the first round of voting in the parliament. Although he barely passed the second round of voting, this setback has seriously weakened his authority and the foundation of his governance.

May 6th was supposed to be a high point in Merz's political career. The hall of the German Bundestag was packed with people. Former Chancellor Angela Merkel, Merz's family members, and important political figures gathered together, ready to witness the birth of the tenth Chancellor of Germany after World War II. However, the subsequently announced result shocked everyone.

According to Huanqiu.com, in the first round of voting, Merz only received 310 votes in favor, 6 votes less than the required 316 votes. This is the first time since World War II that a Chancellor candidate in Germany failed to gain a majority in the first round of voting. This result caused an uproar in German public opinion.

Although after several hours of emergency talks and behind-the-scenes struggles, Merz finally obtained the required absolute majority of votes in the second round of voting later that day. But the failure in the first round has cast a shadow over the beginning of his term in office, seriously damaging his political authority. It has also made investors question the stability of the German political situation and whether Merz can quickly stabilize the situation and start promoting his economic reform agenda.

Merz Encounters a Political Crisis at the Start of His Term

Regarding Merz's tortuous election, political scientist Andrea Römmele commented: "This is historical. It is absolutely historical. No Chancellor has ever lost in the first round of voting, and no one expected such a situation."

"This shows how fragile the entire coalition is," Römmele added. "This weakens his strength, just when everyone in Europe is watching and waiting for Germany's recovery."

Media analysis pointed out that this failure highlights the growing political turbulence in Germany, which was previously revealed when Olaf Scholz's three-party coalition collapsed due to continuous quarrels. Merz was supposed to have an easier time governing by restoring the so-called "grand coalition" that supported Angela Merkel in three of her four terms. However, the rise of the far-right Alternative for Germany (AfD) has left the leader of the Christian Democratic Union with only a slim majority.

In this turmoil, the far-right AfD has become the biggest winner.

Alice Weidel, the co-leader of the far-right AfD in Germany, and her faction were overjoyed and celebrated this unexpected victory. In Germany, Merz regards the ruling coalition he formed with the Social Democratic Party as the last-ditch effort of mainstream political parties to prevent the rise of the far-right AfD.

Beatrix von Storch, the deputy chairperson of the AfD parliamentary group, posted on social media: "No Chancellor has ever faced such controversy at the beginning of his term as Merz. It was not the opposition that almost eliminated him, but his own people. They have made Germany a laughingstock."

Investor Confidence and the Outlook for Economic Recovery Suffer Setbacks

Affected by this, the DAX index of the Frankfurt stock market in Germany fluctuated sharply and declined on that day, and the surrounding stock markets also fell one after another.

This turmoil coincides with a sensitive moment for Germany: after two years of economic recession, the economy has stagnated, the growing inequality has intensified social tensions, and Trump's trade war has further increased the headwinds faced by the German industry.

Carsten Brzeski, the head of global macro research at ING, said: "What was supposed to be the beginning of a new chapter has turned into a day of great setbacks. The hope that the new government could quickly promote investment and reforms has been shattered."

Does this herald trouble for the centrist coalition composed of the Christian Democratic Union/Christian Social Union and the Social Democratic Party? Bloomberg economist Antonio Barroso believes there is such a possibility.

"To a large extent, it depends on whether the dissent within his newly formed coalition stems from real policy differences or is just a warning to Merz to adopt a more cautious and moderate leadership style," Barroso said.

Merz successfully persuaded the Social Democratic Party and the Green Party to pass a constitutional amendment after the election on February 23rd, unlocking billions of euros in borrowing for defense and infrastructure spending. This possible fiscal stimulus made investors optimistic about Germany's prospects, but now these plans are facing more scrutiny.

For investors, whether Merz can quickly stabilize the situation and start promoting his economic reform agenda will be the key driving factor for the performance of German assets in the future.

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