Friedrich Merz has officially been elected as Germany’s new chancellor following a dramatic second-round vote in the Bundestag, overcoming an unexpected initial setback earlier in the day. Merz secured 325 votes—nine more than the required majority of 316 out of 630 members—after falling short by just six votes during the first round.

The center-right CDU/CSU candidate was formally appointed by President Frank-Walter Steinmeier on Tuesday afternoon, putting an end to hours of political uncertainty. His election marks a significant moment for Germany, as he assumes leadership amid mounting economic and geopolitical challenges.

A Delayed but Decisive Victory

The Bundestag’s first vote earlier in the day had left Germany’s political landscape in suspense, with only 310 members backing Merz. The unexpected shortfall sparked speculation about coalition stability and internal dissent. However, the second vote delivered a clear mandate, reaffirming confidence in the CDU/CSU-led coalition.

Following the result, Germany’s DAX stock index trimmed its losses, reflecting market relief. By mid-afternoon London time, the index was down just 0.4%.

Coalition Formed After Weeks of Negotiations

Merz’s center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), emerged as the largest bloc in Germany’s February federal election. A formal coalition has since been formed with the center-left Social Democratic Party (SPD), which placed third.

On Monday, the coalition finalized and signed its governing agreement, outlining plans for reforms in migration policy, tax laws, and social protections, including minimum wage adjustments. The coalition also announced its cabinet, naming Lars Klingbeil (SPD) as Vice Chancellor and Finance Minister, Katherina Reiche as Economy Minister, and Johann Wadephul as Foreign Minister.

A Veteran of Politics and Business

At 69, Merz brings decades of experience spanning both politics and the corporate sector. A trained lawyer, he has served as a judge, worked at major firms including BlackRock Germany, and held board positions at EY Germany and Deutsche Börse.

His political roots with the CDU trace back to his youth. He served in the European Parliament before becoming a Bundestag member and was once seen as a rival to former Chancellor Angela Merkel. After a political hiatus, Merz returned to prominence, ultimately taking the reins of the CDU.

Challenges Ahead

Merz steps into office during a particularly turbulent period for Germany. The country faces slow economic growth, migration-related tensions, and ongoing pressure from global issues like the Russia-Ukraine war and strained U.S.-EU trade relations.

Adding to these complexities is a sweeping fiscal package from the coalition agreement, which includes revisions to debt limits and a multibillion-euro fund for infrastructure and climate investments. Analysts caution, however, that delivering on these promises will be no easy feat.

“This was a strong and impressive start,” said Carsten Brzeski, ING’s global head of macro, in a note Tuesday. “But what has followed has been a series of missteps. Today’s events remind us that the government faces a daunting task in meeting its ambitious reform agenda.”