Germany’s government collapsed after Chancellor Olaf Scholz fired his finance minister, Christian Lindner, marking a turning point for Europe’s largest economy.

This unexpected upheaval comes against a backdrop of economic stagnation, political tensions and external pressures, with Germany and the European Union facing significant challenges on a global scale.

What happened in Germany?

On Wednesday, Germany’s “traffic light” coalition – an alliance of Scholz’s Social Democrats (SPD), Greens and Free Democrats (FDP) –
was officially dissolved. Scholz cited Lindner’s obstructive behavior on key budget issues, accusing the finance minister of putting partisan priorities ahead of the needs of the nation.

“We need a government that can act, that has the strength to make the necessary decisions for our country,” Scholz told reporters, emphasizing his dissatisfaction with the situation.
Christian Lindner approach to the country’s economic and fiscal challenges.

The coalition, formed in 2021, pledged to modernize and reform, taking over after 16 years of Chancellorship from Angela Merkel. However, internal discord over fiscal policy, military spending and environmental initiatives has created tensions within the coalition.

Divisions came to a head with Lindner’s refusal to support Scholz’s proposal to suspend the “debt brake” to finance a 15 billion euro program for Ukraine, and a national initiative to cap energy costs for businesses in a context of growing economic challenges.

Lindner, known for his fiscal conservatism, responded by accusing Scholz of trying to “force” him to exceed Germany’s constitutionally imposed spending limit, remarking: “Olaf Scholz refuses to recognize that our country needs of a new economic model.

All remaining FDP ministers – the transport, justice and education ministers – voluntarily resigned their posts, leaving Scholz to lead a minority government with the SPD and Greens.

What future for the Scholz government?

Following the collapse, Scholz plans to call a vote of confidence in Parliament on January 15. If he does not win the vote, Scholz could call for an early election for president, which would then take place by the end of March.

The conservative opposition is exerting increasing pressure to speed up this process; Markus Söder, a prominent figure in the CDU, said: “There must be no tactical delay. The question of trust must be asked immediately and not next year.”

Pending the vote, Scholz will try to govern with the remaining SPD-Green alliance, which falls short of the 367 votes required for a majority. With just 324 seats between them, the SPD and Greens would need one-off support from opposition parties to pass legislation.

This leaves Scholz in a precarious position, relying on fragmented alliances to meet immediate political needs. To keep the government functioning, Scholz would have to negotiate support from the conservative CDU-CSU alliance, led by Friedrich Merz, particularly on the budget and defense spending.

Scholz stressed the importance of “constructive cooperation on issues crucial to our country,” calling for unity at a time of heightened domestic and international tensions.

Merz faces a dilemma, however: while he favors increased defense spending and aid to Ukraine, he may be reluctant to credit Scholz with political victories just before an election. Nonetheless, Scholz is determined to seek Merz’s cooperation in resolving Germany’s economic crisis and enforcing crucial legislation ahead of possible elections.

Why is the German economy in crisis?

The German economic model is under severe strain. Once a European manufacturing powerhouse, Germany is grappling with a prolonged economic recession attributed to the disruption of its energy supplies after Russia’s invasion of Ukraine in 2022 and intensifying competition from China.

Scholz aimed to counter this downturn with a series of proposals to stimulate the economy, including a cap on business energy costs and
significant support for Ukraine. The chancellor’s budget plan included an ambitious €15 billion aid package for Ukraine, demanding a suspension of the “debt brake” that limits public borrowing.

That proposal was blocked by Lindner, who has consistently advocated cutting public spending, tax cuts and slowing progress in Germany’s transition to a carbon-neutral economy.

Robert Habeck, Scholz’s economy minister and vice-chancellor, expressed disappointment at the coalition’s failure to agree on a “funding gap” for next year’s budget, saying : “Tonight is not good and it is not good. It’s almost tragic on a day like today, when Germany must demonstrate unity and capacity for action in Europe.”

What does the German public want?

This political disarray comes against a backdrop of shifting public opinion. A recent ARD poll showed that 54 percent of Germans support early elections and a staggering 85 percent are dissatisfied with the government’s performance.

The Social Democrats currently receive around 15 percent of the vote in national polls, behind the conservative CDU-CSU and the far-right Alternative for Germany (AfD), which received
gained momentum amid growing disenchantment with traditional parties.

The AfD has capitalized on issues such as immigration and economic nationalism, positioning itself as an alternative voice in a time of uncertainty.

The Greens have also seen their popularity decline, to around 11 percent in polls, while Lindner’s FDP risks failing to reach the 5 percent threshold needed to retain seats in parliament if elections were held today .

Why this bad timing for Germany?

The political crisis in Germany coincides with
The return of Donald Trump at the White House, leading to further uncertainty over U.S. support for NATO and Ukraine. Europe, led by Germany and France, now faces increased pressure to consolidate its defense strategy and financial support for Ukraine.

The two largest economies in the European Union – Germany and France – are both
mired in political turbulence, complicating the EU’s ambitions for greater integration and unified responses to global challenges.

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Germany’s domestic instability threatens to weaken its leadership role within the EU and risks slowing critical defense and economic initiatives.

When asked if Germany was still capable of functioning, Habeck replied Deutschlandfunk radio: “Yes, of course we are”, adding however that “we no longer have a majority in Parliament”.

With the contribution of agencies