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Germany’s political crisis, explained
While the United States was still busy counting votes, Germany’s ruling coalition led by Chancellor Olaf Scholz suddenly fell apart last Wednesday, plunging Europe’s largest economy into chaos. Now, Germans are set to head to the polls on Feb. 23 – seven months earlier than originally planned – to elect a new government at a particularly challenging time for their country, the EU, and the world.
What happened?
After less than three years in power, the so-called “traffic light” coalition of Scholz’s center-left Social Democrats, the environmentalist Greens, and the pro-business Free Democrats collapsed on Nov. 6 when the chancellor unceremoniously fired his finance minister and the Free Democrat leader, Christian Lindner.
The move followed months of bitter negotiations over how to plug a roughly €10-billion hole in next year’s federal budget. The coalition’s progressive partners favored taking on more debt to boost spending on infrastructure, defense, and aid to Kyiv (Germany is the second-largest contributor of military aid to Ukraine after the US). The fiscally conservative FDP opposed any new borrowing despite Germany’s low debt-to-GDP ratio, instead pushing for tax and spending cuts that would reduce welfare transfers, aggravate Germany’s malaise, and curtail support for Kyiv.
The standoff came to a head because Germany has a strict constitutional debt limit the government is not allowed to exceed outside of exceptional circumstances like the COVID-19 pandemic. When Scholz asked his finance minister to suspend the “debt brake,” citing the exceptional impact of the war in Ukraine, Lindner refused to budge, and the traffic light broke.
This was the conclusion of an uneasy marriage of convenience riven by ultimately irreconcilable differences about how to kickstart Germany’s long-stagnant economy and execute the foreign and security policy Zeitenwende (or “turning point”) that Scholz proclaimed when he replaced Angela Merkel as chancellor in 2021. One Russian invasion of Ukraine and three years of gridlock, high energy costs, and flat growth later, Germans have soured on their government. A recent poll found that only 14% of voters were satisfied with the ruling coalition, with 54% wanting early elections.
What now?
Scholz’s Social Democrats and Friedrich Merz, who succeeded Merkel as leader of the opposition conservative Christian Democratic Union, have agreed to hold a vote of confidence to trigger the dissolution of parliament on Dec. 16. Provided Scholz loses it – as is widely expected – early elections will then be held on Feb. 23.
In the meantime, Germany will be in a limbo of sorts. The chancellor and his remaining Green coalition partner will remain in office until a new coalition is elected, but as the head of a minority government, he now has to secure support from opposition parties on a case-by-case basis to get any laws passed. In particular, Scholz needs votes from Merz’s conservatives to pass an all-important 2025 compromise budget. But that’s a very tall order, requiring not only painful concessions from the CDU – especially on the suspension of the debt brake – but also that the SPD give up core elements of its legislative agenda in return.
If no budget is passed by year-end, as looks likely, Germany will enter into “provisional budget management” – a state of limited government operations and funding based on 2024 numbers. While this won’t lead to a government shutdown like it would in the United States, no new obligations or programs could be passed before a new government finally approves a 2025 budget, potentially not until the second or third quarter of next year. This would restrain Berlin from active policymaking during the critical early days of Donald Trump's presidency, at a time when Europe is more rudderless than ever and Russia continues to threaten Ukraine and NATO.
The road ahead
The opposition CDU/Christian Social Union center-right alliance leads the national polls with 34%. Of the “traffic light” coalition parties, Scholz’s SPD is polling at around 16%, while the Greens hover at 11%. Lindner’s Free Democrats, meanwhile, are currently below the 5% threshold required to get into parliament.
The far-right Alternative for Germany is the second-most popular national party, with 17% support, but all other parties continue to explicitly rule out the possibility of entering into a coalition with it. The newer pro-Russian, anti-immigration, left-wing Sahra Wagenknecht Alliance, which made large gains in September’s state elections, is somewhat less domestically toxic than AfD and polling at 6%.
Of course, there are still more than three months to go until the election, and these numbers will change, especially in the wake of the government’s collapse. But barring any major surprises, the CDU’s Merz is all but certain to become the 10th German chancellor since 1949. Assuming the conservatives’ most natural partner, the FDP, is unable to clear 5%, the only open question is whether the next government will be a grand coalition of the CDU/CSU and the SPD or another three-way coalition including them plus the Greens.
Grand coalitions have a long history in Germany and are popular with voters for their track record of delivering moderation and stability. Three-way coalitions, by contrast, are an unwieldy, unstable last resort for mainstream parties to form majority governments in Germany’s increasingly fragmented party landscape – a challenge that is only going to accelerate as the anti-establishment AfD and BSW continue to grow in popularity.
Whatever it looks like, the next government will have to contend with the big challenges that the current administration failed to address. Germany faces deep structural problems, including chronically low productivity and investment, high energy and labor costs, unfavorable demographics, a fragile export-dependent growth model, and an overly rigid debt limit rule.
But Berlin’s biggest challenges aren’t economic – they’re existential. At a time when Russia is testing NATO's resolve, China is challenging the Western-led international order, and America's commitment to Europe is in question, Germany must decide what kind of power it wants to be.
Will Europe’s economic engine finally step up as a geopolitical leader, or will it continue to punch below its weight? For Germany’s next government, there may be no more kicking this can down the road.
German election outcome begins new era of three-party cooperation
Carl Bildt, former Prime Minister and Foreign Minister of Sweden, shares his perspective from Europe:
What about the outcome of the German election?
Well, as expected, the Social Democrats under Olaf Scholz came out on top. They had a very credible campaign, presenting him primarily not as a Social Democrat, but as a possible successor to Angela Merkel. Then, It's going to take quite some time to form a new government and the exact outcome of that, not entirely certain.
Is this the beginning of a new era in the politics of Germany?
It certainly is. First, of course, Angela Merkel will step down whenever a new government comes into being. After 16 years, is a long period. She's been around more or less forever in the politics of Europe. And then also because of the fact that it will be necessary to have a government of three parties. That hasn't happened for very long time in Germany. And the key will be to bridge the difference between the Greens with their agenda, and the Liberals with a more liberal economic agenda. And how the two of them will come together will be key. Then I think the Social Democrats or possible the Christian Democrats will have to adjust to the agenda decided effectively by the Greens and the Liberals.
Germany's floods make climate, competence top issues for election
Carl Bildt, former Prime Minister and Foreign Minister of Sweden, shares his perspective from Europe:
What will be the effects on the politics of Germany after the immense flooding?
Well, it's really been a catastrophe, nearly 200 people dead in Germany alone. First effect, naturally, questions about the competence of the government, has enough been done? And secondly, climate issues will be much more in forefront of the election campaign.
What are the details of the green package that was unveiled by the European Commission the other day?
Details, there are many. But there are two pillars of it. The first is the radical enlargement and strengthening of the ETS, the Emissions Trading System, to include housing and include transport. That's a fairly firm mission. Secondly is what is called a carbon border adjustment mechanism. That is a carbon tax on imports from countries that are less stringent on climate. Both of these are fairly significant measures. There will be a lot of debate both inside Europe and around the world about the effects that they will have, but if Europe is going to achieve the 55% reduction by 2030, that has been promised and is necessary, ain't much of an alternative.
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Russia will withdraw forces from Ukraine but Putin reveals nothing
Carl Bildt, former Prime Minister and Foreign Minister of Sweden, shares his perspective on Europe In 60 Seconds:
What are the Russians up to against Ukraine?
We simply don't know, except the fact that they're concentrating a huge amount of military forces. And you don't do that for nothing or for fun. They are there for a purpose, to have pressure or to undertake limited to larger operations. We simply don't know. And when Putin delivered his State of the Union speech the other day, he didn't say a thing about this. They are now talking about withdrawing the forces. But let's wait and see. They have talked about withdrawing forces from Syria for a long time, but we haven't seen that as of yet.
What's happening in the politics of Germany?
Well, in the politics of Germany, you have drama. You had the drama inside the CDU/CSU coalition on nominating a candidate for the chancellorship. They managed to sort that out with taking the candidate who is the least popular, according to public opinion. And then the Greens, of course, launched their candidate, a 40-year-old lady, no prior experience. But she's well in the opinion polls at the moment. So stay tuned. The politics of Germany is going to be interesting and important. We are talking about the third largest industrial economy of the world.
Hope for Europe's vaccine rollout; CDU setback in German elections
Carl Bildt, former Prime Minister and Foreign Minister of Sweden, shares his perspective on Europe In 60 Seconds:
How is the rollout of vaccines in Europe going?
So-so might be the best answer to that question. The UK is significantly ahead of most of the EU countries. It's being difficult to rollout production or increase production sufficiently fast. But it will get better in the coming months. And I hope that the evils of vaccine-nationalists can be prevented.
What's the fallout of the German regional elections over the weekend?
I think there will be significant fallout from them. It was a setback for the governing CDU in Berlin, governing CDU, no question about that. Even more so for the sort of radical nationalist AfD. But prior to the September election, it has now widened the options for governance of Germany after that particular election or the discussion about that. A government without the CDU seems, well, if not likely, but then at least possible. But it has changed the landscape. But it's early days. September is a long way away, but German politics looks somewhat more dynamic after these elections.
Estonian PM resigns over corruption allegations; post-Merkel Germany
Carl Bildt, former Prime Minister and Foreign Minister of Sweden, shares his perspective on Europe In 60 Seconds:
Why did the Estonian prime minister resign and what happens now?
Well, he had to resign because there were allegations of corruption in connection with a construction issue in in Tallinn. Let's see. I think my best guess is that there will be a new coalition with the new composition of parties and perhaps a more clear-cut commitment to reforms.
What does the post-Merkel future look like for Germany's CDU leadership?
Well, that remains to be seen. They will, the CDU, which is the most significant and most powerful political party in Europe, will elect its new leader on Saturday. Somewhat of an open race between three candidates. Then CDU, and CSU, the Bavarian sister party will elect a chancellor candidate in April. And then, of course, the electorate of Germany will have its final say at the election end of September.