Just one in 10 Germans thinks Merz is up to the job after election wipeout

Chancellor Friedrich Merz's approval fell to a record low, with only 10% of ARD survey respondents satisfied with his performance after the CDU suffered severe state-election losses, including failing to clear the 5% threshold in Mecklenburg-Western Pomerania. The AfD won more than one-third of votes there and over 40% in Saxony-Anhalt, while The Left won Berlin with 25.7%, increasing pressure on Merz and the CDU-SPD coalition. Coalition divisions over pension reform, healthcare funding, tax increases and budget consolidation threaten the government's 34-measure reform package and could ultimately destabilize the governing alliance.

Analysis

The investable implication is not a near-term change in government, but a higher probability that fiscal, labor-market and pension measures are diluted or deferred. That raises Germany’s medium-term potential-growth discount and leaves domestic cyclicals more exposed to weak operating leverage; the clearest transmission is delayed public procurement and lower certainty around infrastructure-related order books. Rheinmetall (RHM.DE), Siemens (SIE.DE), Heidelberg Materials (HEI.DE) and construction suppliers retain structural demand, but should trade on execution timing rather than headline fiscal ambition over the next 1-3 months.

A weaker governing mandate also increases the chance that coalition partners pursue visible consumer protections rather than supply-side reform. This is incrementally negative for Vonovia (VNA.DE) and LEG Immobilien (LEG.DE): tighter rental-policy rhetoric and slower permitting reform would sustain the sector’s regulatory multiple discount even if ECB easing improves financing costs. Conversely, limited fiscal follow-through could be modestly supportive for Bund duration in the near term, since anticipated issuance and domestic-demand impulse would be lower than a full reform package implies.

The consensus risk is to treat electoral fragmentation as automatically bullish for defense and infrastructure spending. The more immediate outcome may be appropriations delays, compromise programs and weaker corporate visibility, not cancellation of strategic spending. BLK has no direct, identifiable earnings sensitivity to this political development; its historical association with an individual politician is not an investable linkage.

The key 1-3 month catalyst is whether the budget and reform agenda produce funded, legislated measures rather than framework announcements. A credible multi-year capital-spending plan, pension reform that expands labor supply, or evidence of coalition stability would reverse the Germany-underweight thesis; further guidance cuts from German industrials or renewed rent intervention would validate it over 6-18 months.

Key Decisions for Investors

• Maintain a tactical underweight in EWG versus EZU for the next 1-3 months; use a 2-3% relative move in EWG outperformance as an entry point rather than chasing post-election weakness. Thesis fails if funded federal investment measures and a stable budget agreement are enacted before the next major state-election test.
• Pair trade: long German Bund futures / short EuroStoxx 50 futures in modest size for 4-8 weeks. Delayed fiscal impulse should favor duration over German/EU cyclicality; exit if budget projections show materially higher net issuance or if core inflation reaccelerates.
• Avoid adding to VNA.DE and LEG.DE until there is clarity on housing-policy proposals and permitting reform. A more investable long setup requires falling funding costs plus explicit evidence that rent restrictions will not tighten; absent that, regulatory risk can offset lower discount rates.
• For RHM.DE, SIE.DE and HEI.DE, treat any politically driven selloff as a watchlist opportunity rather than an immediate broad-sector buy. Add only after contract awards, budget appropriations, or backlog guidance independently confirms that spending timing has not slipped; a 5-10% order-intake downgrade would invalidate the near-term catalyst.