By Brian Swint

Germany has voted for change in its federal election.

The conservative CDU comfortably finished with the most seats, and investors are optimistic that the new government will bring much-needed changes that could bolster the economy and stock market, which is booming.

But the biggest relief is that the center-left SPD won enough seats in the Bundestag to be able to form a two-party governing coalition. A two-party alliance should be less unwieldy than one that requires three or more blocs to agree on a program, which would have watered down the agenda.

The vote finished largely as opinion polls suggested it would -- the lack of surprises in itself is reassuring to traders.

The DAX was up as much as 0.5% just after it opened on Monday having hit a record earlier this month. The index includes software company SAP, engineering giant Siemens, pharmaceutical firm Merck, and car makers Volkswagen, Mercedes-Benz, and BMW. The euro added 0.2% against the dollar to trade at $1.0482.

"The hope that the Conservatives' win might help pull Germany out of economic stupor and help bolster collective defence, has lifted investor spirits," said Susannah Streeter, head of money and markets at Hargreaves Lansdown. "A dose of more certainty has been injected into European politics."

Even though Germany's economy is in the doldrums, having failed to grow since the recovery from the Covid-19 pandemic, its blue chip DAX index of stocks has been going from strength to strength. That's because the biggest companies make most of their money abroad, making them less reliant on the domestic economy.

Negotiations to actually form a government will still take weeks, if not months. But Friedrich Merz, the next chancellor, is aiming to make the tax and regulation more friendly to business. He's also in favor of changing the country's so-called debt brake, a constitutional amendment that limits deficit spending and is currently standing in the way of unleashing new funds for investment and defense.

Merz will have a lot on his plate. Beyond reviving the economy, he'll have to deal with the fallout of Russia's invasion of Ukraine and President Donald Trump's plans to raise taxes on imports from Germany. On Sunday, Merz said it was time to make Europe more independent from the U.S.

Write to Brian Swint at brian.swint@barrons.com

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February 24, 2025 05:23 ET (10:23 GMT)

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