German Ruling Coalition Falls Apart

Former ministers Christian Lindner, Marco Buschmann, and Bettina Stark-Watzinger stand beside Jörg Kukies, new Federal Minister of Finance, as German Chancellor Olaf Scholz looks on in the Bellevue Palace in Berlin. (Source: AP Photo/Ebrahim Noroozi)

The German ruling coalition, led by Olaf Scholz, has collapsed following the firing of the finance minister, Christian Lindler, last week. Lindler and Scholz reportedly disagreed over the direction of the budget negotiations. Scholz’s three way coalition completely imploded when two of Lindler colleagues in the cabinet subsequently  stepped down. 

Snap elections have been called for Feb. 23. Scholz is expected to put the current government to a vote of no confidence, which by all accounts will pass. Consequently, German President Frank-Walter Steinmeier will have 21 days to officially dissolve parliament and approve the elections set for late February. In the interim, Scholz will lead with a minority.

German Chancellor Olaf Scholz, centre, leaves the Bellevue Palace in Berlin, Germany, Thursday, Nov.7, 2024. (AP Photo/Ebrahim Noroozi)

Jörg Kukies has been appointed as the new finance minister. Kukies spent the majority of his career in international banking and most recently served as State Secretary at the Federal Chancellery. He has publicly stated that passing a new budget before the election of a new government is unlikely. This uncertainty casts a shadow over Germany's fiscal future and raises questions about the direction of its economic policy.

Despite the political turmoil, there is a potential benefit for Germany and the broader eurozone. The markets are betting on the possibility of a looser German fiscal policy following the elections. Such a shift could spur higher economic growth, which would, in turn, support European stocks and the euro. For the eurozone, which has been grappling with economic challenges, including a near-recession in Germany during the third quarter, increased spending could revitalize its currency and stock markets.

Germany, as Europe's largest economy, has been slow to recover from the economic impacts of the COVID-19 pandemic, primarily due to its conservative spending measures. A change in fiscal policy might provide the necessary impetus for a robust economic rebound, benefiting not just Germany but also its European neighbors.

The collapse of Germany’s ruling coalition carries political implications that reach beyond economic issues. A primary concern is the potential rise of far-right parties within the country, a development that could dramatically shift Germany’s political dynamics. While both the right and the left have welcomed the promise of new elections, the prospect of a federal coalition involving the far-right Alternative for Germany (Alternatif fur Deutschland - AfD) has become a focal point among political analysts. 

This potential shift in the political landscape is not just a domestic concern, but one that could also reverberate throughout Europe, affecting Germany's leadership and influence within the European Union. Such a coalition, if realized, would mark a significant departure from Germany's post-war political norms, which have traditionally centered around centrist and moderate coalitions. 

The AfD’s inclusion in the federal government could lead to policy changes that might challenge Germany’s current commitments to the EU, particularly in areas like immigration and climate policy. These changes could strain Germany's relationships with other EU member states and alter its role as a stabilizing force within the bloc. The implications of such a political shift are profound, potentially affecting everything from EU policy-making processes to Germany's ability to negotiate and lead on the international stage.

The timing of this political crisis is particularly concerning in the wake of last week's US elections. With President-elect Donald Trump advocating for 'America-first' policies, there is an expectation that the US will turn its focus away from Europe. In this context, European unity and strength will be essential. As the European Union's largest economy, Germany cannot afford to be divided.