Breaking with the past

24 Feb 2025 2 min read

Daily update

As with many other elections in the past 12 months, the Germans voted against their incumbent government. The CDU鈥檚 Merz is expected to become the next chancellor (coalition negotiations typically take months). After the results, Merz compared US election interference to that of Russia, and suggested that Europe would need to become independent of US security.
An independent strategy has wide implications. Beyond the obvious defense spending, it may mean economic disengagement. US President Trump鈥檚 tactic of asking companies to buy more US weapons in exchange for trade deals will be less effective if the US is viewed as a less reliable defense partner.
There are several sentiment surveys due, including the German ifo, but these offer limited real world insights. The US Dallas Fed manufacturing survey does offer some insights into polarization. Michigan consumer confidence showed growing economic pessimism amongst Democrats and independents in late February, but even more optimism among Republicans.
There has been another high profile attempt to reduce US federal government employment. Civilian federal government employment (excluding postal workers) is less than 1.5% of the US workforce, making job losses less economically significant. However, the loss of staff and expertise may make government less efficient, hampering economic activity that has the federal government in the supply chain.