Friedrich Merz's election victory marks the startof a new political era for Germany, but his path to governing is anything butclear. His party secured the most votes in Sunday's election,but without an outright majority, he must navigate complex coalition talks, Reuters reported.With economic troubles mounting and geopolitical tensions rising, Germany'sprolonged political uncertainty could have far-reaching consequences.A Fractured Political LandscapeMerz's conservative alliance received around 29% ofthe vote, a strong showing but not enough to govern alone. With the outgoingChancellor Olaf Scholz's Social Democrats (SPD) capturing a significant shareof the vote, Merz will likely need to bring them into his coalition. However, the real challenge lies in whether a thirdparty will be required to secure a parliamentary majority. The Greens, with12%, and the pro-business Free Democratic Party (FDP), hovering near the 5%threshold, are potential coalition partners.Friedrich Merz is on track to become German chancellor after his conservative CDU polled the most votes in Sunday's election, while the AfD made the biggest gains for the far-right in 80 years pic.twitter.com/xh5bVbmdUF— TRT World (@trtworld) February 24, 2025Merz has campaigned on tax cuts, particularly reducingbusiness levies from 30% to 25% while easing the burden on households. However,the SPD and the Greens favor tax hikes on higher incomes, making compromiseinevitable. If the FDP joins the coalition, they are expected topush for lower taxes and resist any reforms to Germany's strict "debtbrake," which limits government borrowing. These conflicting fiscalvisions could prolong negotiations, delaying much-needed economic stimulus asGermany faces its third year of economic stagnation.Germany's election also highlighted growing voterdiscontent with mainstream parties. The far-right Alternative for Germany (AfD)secured about 20% of the vote, while the far-left Die Linke took 9%, reflectingpolitical fragmentation. Economic and Fiscal Policy at a CrossroadsDespite the uncertainty, Germany's stock marketreacted positively, with the DAX index rising 0.6% on Monday. However, themarket remains cautious, particularly given Germany's reliance on global trade.The specter of a potential trade war, especially undera possible second Trump presidency in the U.S., continues to weigh onvaluations. Merz's post-electionremarks signaled a shift in Germany's foreign policy stance. Traditionally astrong US ally, Merz questioned Washington's commitment to European security,particularly in light of Trump's recent comments on NATO.This article was written by Jared Kirui at www.financemagnates.com.