Germany’s Election and EU Markets: How Stocks Are Reacting

Preliminary results from Germany’s federal election yesterday, Sunday, 23 February, show that the conservative CDU/CSU bloc, led by Friedrich Merz, secured 28.5% of the vote. 

The far-right AfD made historic gains with 20.8%, while the ruling SPD suffered a major defeat, winning just 16.4%. This marks a sharp decline from the 25.7% the SPD secured in the 2021 elections.

The outcome sets the stage for coalition negotiations, with a CDU/CSU-SPD alliance seen as the most likely path to government. 

Meanwhile, Merz has ruled out working with AfD despite its strong showing.

How EU Markets Are Reacting to Germany’s Election

In the first hours of trading following Germany’s election, the DAX is up approximately 0.9%  as of midday Central European Time.

Other major European indices are also showing stability, with no significant volatility as of the morning of 24 February, Central European Time (CET). Spain’s IBEX 35 leads with a 0.4% gain, while Italy’s FTSE MIB is nearly flat, inching up 0.02% as of the time of writing

France’s CAC 40 rises 0.2%, maintaining a steady pace. (Source: Finance Yahoo)

Meanwhile, the EURO STOXX 50 sees a slight decline of around 0.1%, indicating a cautious approach from investors as they assess the implications of the election results and potential coalition negotiations.

How Is the EUR/USD Reacting to Germany’s Election?

The EUR/USD climbed steadily after the election results, rising from 1.046 at 22:20 UTC to 1.052 at 2:50 UTC, marking a 0.57% increase. This brings the euro to a one-month high.

However, by early trading on 24 February, the pair had dipped slightly to 1.047. 

The initial post-election rally reflects investor confidence, as the likelihood of a CDU/CSU-SPD coalition reduces uncertainty.

Merz Set to Lead Europe in Countering Trump

Poised to become Germany’s next chancellor, Merz has called for Europe to take a stronger, more independent stance against US policies under Donald Trump. 

Merz has criticized Washington’s push for Europe to take full responsibility for its own security, warning that NATO’s future is uncertain and that the bloc may need to develop its own defence strategy.

Merz has also voiced concerns over Trump's decision to impose a 25% tariff on steel and aluminium imports starting next month, urging a firm European response.

To ease tensions, he has proposed negotiating a comprehensive EU-U.S. free trade agreement, arguing it would benefit both economies while preventing a broader trade war.

Merz’s Economic Agenda: Tax Cuts, Deregulation, and Market Reforms

Merz champions a pro-business, free-market approach, pushing for lower taxes and reduced regulation to boost growth. He has proposed cutting 

Germany’s corporate tax rate will be reduced from 40% to 25%, offering tax relief for low—and middle-income households.

His agenda prioritizes deregulation to ease bureaucratic hurdles for businesses and accelerate project approvals. He also advocates stricter immigration policies.

Under his Agenda 2030 plan, Merz seeks to increase Germany’s competitiveness and attract investment, positioning the country as a more business-friendly and dynamic economy. (Source: The Times)

Conclusion

Germany’s election results mark a turning point, setting the stage for coalition talks that will define the country’s political and economic direction. 

Markets have reacted with cautious optimism, with the DAX rising and the euro strengthening, signalling investor confidence in a stable government.

Merz’s pro-business agenda and focus on deregulation could boost competitiveness, but much depends on coalition negotiations. His leadership may also reshape Europe’s approach to trade, security, and relations with the US. 

As talks unfold, investors will be watching closely for policy signals that could impact markets and Germany’s economic trajectory.

*Past performance does not reflect future results.