With the three parties pledging to not raise income nor corporate taxes, while raising the minimum wage from € 9.6 to € 12, disposable income for nearly 5% of minimum wage workers is expected to increase, which will slightly boost consumption. However, elevated inflationary pressures will prevent a substantial uptick in consumption and increase price sensitivity for durable goods among certain consumer segments. MNCs should expect a long-term rise in input costs following the coalition’s expected focus on reducing carbon emissions, with solar energy becoming compulsory for new commercial buildings.
Germany’s newly sealed coalition government of the Social Democrats (SPD, 206 seats), the Free Democrats (FDP, 92 seats), and the Greens (118 seats) will have current Finance Minister Olaf Scholz as chancellor. Ministers will be announced next week, with seven out of the 16 positions reserved for the SPD, including health, labor, defense, and interior. Current FDP leader Christian Lindner is poised to be the finance minister, with his party also heading the justice, transport and digital infrastructure, and education ministries. The Greens will head the foreign, agriculture, and environment ministries, as well as a new super ministry of economy and climate protection. The voting age will be lowered from 18 to 16. The new government must gain support from the smaller parties to guarantee the three-quarters majority required to amend the constitution.
The new coalition is expected to continue Merkel’s fiscal discipline and return to its constitutional debt brake by 2023, after it was suspended during the pandemic. As tax revenue will not significantly increase, government revenues will be funded through issuing new debt. Regarding foreign policy, Germany’s relationship with the US and France, as well as its NATO membership, will be a priority. Although the Greens’ new foreign minister, Annalena Baerbock, promised to maintain a tough stance on Russia and China, the expected approval of the opening of the Nord Stream 2 gas pipeline will limit her policy options.
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