German Finance Minister Christian Lindner, Economics and Climate Action Minister Robert Habeck and Chancellor Olaf Schulz attend a debate on the 2024 federal budget in the Bundestag on January 31, 2024 in Berlin, Germany.
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Germany’s ruling coalition has long been in jeopardy, with its three member parties increasingly divided over economic and budget policies.
The situation has intensified in recent weeks, raising concerns about the state of the three-year-old alliance between Chancellor Olaf Scholz’s Social Democrats (SPD), the Greens and the Free Democrats (FDP).
Speculation is now rife about whether the league could break up as soon as this week, with media reporting on talks Sunday night and early this week between representatives from each league ahead of a regular league meeting on Wednesday.
“German politics appears to have turned into a slow-motion train crash. The German government has just entered a new phase of a slow-burn political crisis that could be the final step before the governing coalition eventually collapses,” Global Head says Carsten Brzeski.
Holger Schmieding, chief economist at Berenberg, noted that the three coalition partners were acting “as if they were preparing to confront each other soon.”
For example, Scholz held a Meet industry leaders last week, but did not invite the party’s coalition partners, prompting the Liberal Democrats to call them their own party alone There is no SPD.
In addition, German Economy Minister and Green Party MP Robert Habeck proposed a policy plan Stimulate business investment, which has been criticized by the Liberal Democratic Party.
Lindner Papers
On Friday, Finance Minister Christian Lindner escalated yet again Publish a paper On reviving the ailing German economy.
“The paper reads like a serious attempt to analyze Germany’s problems and propose solutions,” Greg Fuzesi, euro zone economist at JP Morgan, said in a note. It goes against the basic position of the Social Democrats and the Greens, so it is difficult for them to accept it.
Brzeski also said that the content of the document was not necessarily the problem, even if it went against key policies of the Social Democrats and Greens, but he noted that “the tone in the document shows how bad the atmosphere among the coalition partners seems to be.” cold”. has become. “
in a sunday tv interview German ZDFLindner said the problems would be resolved, noting that it was primarily the responsibility of his governing partners. He dodged a question about whether he planned to leave the coalition if his proposals for the country’s economic growth were not supported.
Competitive budget
A recent key issue within the alliance has been Germany’s 2025 budget – a topic that also received heavy attention in Lindner’s paper. The budget is The plan, initially proposed earlier this year, left several questions unanswered about the multi-billion-euro funding gap. Based on the current operational schedule, the budget should be completed by mid-November.
Futzer said the coalition was now forced to make difficult decisions under time pressure against a backdrop of different economic visions and the hole left in Germany’s finances last year when the Constitutional Court ruled the government could not reallocate emergency funds. The budget was increased during the epidemic.
Berenberg’s Schmieding also said that “if the coalition cannot agree on fiscal and reform priorities for the 2025 budget, the government could collapse.”
Is it possible that the alliance will break up?
In addition to finding a solution to the problem, several scenarios are now possible that could change the composition of the German government.
Berenberg’s Schmiding said that first, the FDP could withdraw from the alliance, either by itself or by angering Scholz and asking them to leave.
“If so, the short-lived SPD-Green government under Scholz could lead to snap elections early next year,” he said. However, Latest polls It shows that the FDP can only get about 3% of the vote in the federal election, which is below the 5% threshold it needs to cross to gain seats in the Bundestag.
The SPD and Greens will also suffer losses in the last federal election, while the current opposition CDU will be most likely to gain the most votes.
“An early election is not yet the most likely scenario, but it is very possible,” Schmieding said.
ING’s Brzeski also pointed out that a minority government could also last until the scheduled election date later in 2025, noting that even if the FDP quit the coalition, it would not necessarily force an early election.
This is because the German constitution stipulates that the federal president can only call an early election if the chancellor fails a vote of no confidence in parliament.
But Brzeski said the league’s prospects appeared weak.
“All in all, we believe the risk of government collapse in Germany has never been higher. Even the potential geopolitical uncertainty brought about by the upcoming US election no longer appears to be the guaranteed glue that keeps the government together,” he said.
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