The pressure to trigger elections is increasing

by Junna Base November 8, 2024

Germany’s governing coalition fell apart on Wednesday after Chancellor Olaf Scholz fired his finance minister.

Sarah Marsh and Andreas Rinke
| Reuters

BERLIN – German opposition parties and business associations called on Chancellor Olaf Scholz on Thursday to quickly call a new election to minimize political uncertainty after the failure of his rocky three-party coalition.

The ruling coalition collapsed on Wednesday when Scholz fired his finance minister, as years of tensions culminated in a dispute over how to plug a billion-dollar hole in the budget and revive Europe’s largest economy, which is heading into a second year of contraction.

The split is creating a leadership vacuum at the heart of the European Union while seeking a unified response to Tuesday’s election of Donald Trump as U.S. president on issues ranging from possible new U.S. trade tariffs to Russia’s war in Ukraine and the future the EU NATO alliance led by the USA.

The chancellor said he would hold a confidence vote in January, which he would likely lose, triggering a new election by the end of March – six months earlier than planned.

Friedrich Merz, chairman of the opposition Conservatives, who are leading in nationwide polls, called for a confidence vote “at the beginning of next week at the latest,” as did other opposition parties.

An election could take place at the end of January, he said.

“We simply cannot afford for a government without a majority to rule in Germany for several months, followed by an election campaign lasting several months and then possibly several weeks of coalition negotiations,” Merz told reporters.

German industry, which is suffering from high costs and strong Asian competition, also called on the Scholz government on Thursday to call new elections as soon as possible.

The uncertainty led to a rise in German borrowing costs, with the benchmark 10-year Treasury yield rising by as much as 10 basis points to its highest level since July. A key market indicator signaling falling debt risk fell to its lowest level on record.

Due to the crisis in his own country, Scholz delayed his departure for the EU summit in Budapest on Thursday and canceled his participation in the next UN climate summit.

Scholz fails to win conservative support

Scholz, of the center-left Social Democrats (SPD), said he fired his Finance Minister Lindner of the fiscally conservative Free Democrats (FDP) because he had obstructed a resolution of budget disputes.

The final straw was his opposition to Scholz’s plan to ease debt limits in order to increase support for Ukraine by $3.25 billion in the 2025 budget.

Lindner’s dismissal led to the FDP leaving the coalition, leaving Scholz’s SPD and the Greens to form a minority government and rely on ragtag majorities to pass substantive measures in parliament.

A meeting between Scholz and Merz on Thursday failed to resolve the stalemate, a government source said.

Jörg Kukies, a top official in the Chancellery and a close SPD ally of Scholz, is named finance minister.

The crisis comes at a critical time for Germany: the economy is stagnating, the infrastructure is outdated and the military is unprepared. There is likely to be another setback for consumption and investment in the coming months, even as Trump’s return threatens to dampen exports, economists said.

The FDP’s departure is likely to mean the departure of the government’s transatlantic coordinator, who has spent months cultivating relationships with senior US Republicans to prepare for a possible return of Trump to the White House.

But the crisis could also be a long-term boon given the tensions that have plagued the coalition, the first of its kind at the national level, said ING economist Carsten Brzeski.

“Elections and a new government could and should end the current paralysis of an entire country and provide new and clear political guidance and security,” he said.

Nevertheless, the rise of both left- and right-wing populist parties in Germany and elsewhere in Europe means that even a new election may not easily enable a coherent coalition with a clear majority.

“You don’t have to be a clairvoyant to conclude that things won’t automatically get easier in the future even after the next election,” said Economics Minister Robert Habeck of the Green Party.

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