New German government will consolidate Merkel’s legacy

Significance

Merkel's Christian Democratic Union (CDU) will once again govern in a grand coalition with the Social Democratic Party (SPD) and the CDU’s Bavarian sister party, the Christian Social Union (CSU).

Impacts

• Regional elections in Hesse and Bavaria at the end of 2018 will be the first tests for the grand coalition.
• The AfD will continue to grow in the short term, but incompetence may restrict its growth potential.
• The Green Party could emerge as a viable left-of-centre alternative to the SPD.
• Merkel’s electoral mishap diminishes her standing in the EU and could embolden countries opposed to French-German reform efforts.
• Domestically, euro-area reform could be hindered if dissent spills over from the AfD into the more conservative ranks of the CDU/CSU.