Germany's New Coalition: Unleashing the Radical Centre

In 1966, Germany formed its first "grand coalition" government in postwar history to address an unexpected economic downturn and growing concerns over a nascent neo-Nazi far-right movement.

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Nearly six decades later, Germany is on the cusp of another grand coalition, with the Christian Democratic Union (CDU) and the Social Democratic Party (SPD) preparing to join forces after February's snap election. Although the challenges today appear similar to those of the past, the circumstances and stakes are much more critical, signaling a shift in German politics that could reverberate across Europe.

Germany's current situation is shaped by a combination of internal stagnation and external geopolitical upheaval. The German economy is enduring its longest period of stagnation since World War II, and growing tensions across the globe are putting pressure on its trade-led economic model.

Meanwhile, the extreme-right Alternative für Deutschland (AfD), which is seen by security services as a threat to Germany's democratic constitutional order, has become the second-largest party in the country. Additionally, the rise of a Putin-sympathetic Donald Trump, who has undermined transatlantic security alliances, is further complicating Germany's international standing.

In response to this challenging backdrop, German politics is undergoing rapid transformation. Chancellor-elect Friedrich Merz, at the helm of the CDU, is leading a historic shift in Germany's fiscal and defense policy. The Bundestag recently voted to amend Germany's Basic Law, allowing for a significant increase in public investment in defense, national infrastructure, and the climate transition.

This change effectively sidesteps the "debt brake," a constitutional limit on borrowing that has long been a symbol of Germany's conservative fiscal policies. By doing so, Germany is shifting from its traditional fiscal conservatism to a more proactive approach, with an emphasis on bolstering European security and addressing long-standing domestic challenges.