Internal disagreements between the three parties of Germany’s traffic-light coalition reached a tipping point. The future looks uncertain for Europe’s powerhouse.
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Just as the United States (US) election results poured in with a decisive victory for Donald Trump, triggering Europe’s worst fears for its security and economy, Germany’s so-called traffic-light coalition government, led by Chancellor Olaf Scholz, collapsed after three years in power.
Since its formation in 2021, there was little that the three parties in the coalition—Scholz’s centre-left Social Democratic Party (SDP), the environmentalist Greens, and the business-focused Free Democratic Party (FDP)—with their different ideologies saw eye to eye on. Tensions finally exploded after months of rifts over budgetary policy, when Scholz fired Finance Minister Christian Lindner from the FDP for blocking his economic proposals aimed at reviving Germany’s ailing economy. This prompted a “total breakdown of trust” between their parties.
Scholz’s proposal included boosting spending by loosening the so-called “debt brake” and plugging 10 billion euros into the 2025 federal budget. This was opposed by Lindner who remained against further government borrowing and instead advocated tax and welfare spending cuts.
Tensions finally exploded after months of rifts over budgetary policy, when Scholz fired Finance Minister Christian Lindner from the FDP for blocking his economic proposals aimed at reviving Germany’s ailing economy.
The collapse of the coalition deal means that Scholz now leads a minority government comprising his party and the Greens, whose ministers, including Vice-Chancellor and Economy Minister Robert Habeck, are continuing to serve in office.
Scholz wants a vote of confidence to be held in the Bundestag in mid-January. If his government loses the vote (a very likely possibility), parliament would be dissolved, and Germans would go to the polls much sooner, in a snap election before the original September 2025 election period.
The German economy, traditionally Europe’s economic powerhouse, has been in the doldrums since the Covid-19 pandemic and the Russia-Ukraine war, which ended Germany’s cheap supplies of Russian gas amidst surging energy prices and costs of living.
Compared with France, which grew at 4.1 percent and Italy, at 5.5 percent over the past five years, the German economy is now in its second year of recession, re-earning its nickname—the ‘sick man of Europe.’ Structural weaknesses including an ageing population, rising labour costs and heavy bureaucracy have contributed to the country’s economic woes. German industries, including its automobile sector, are under immense strain, facing competition from Chinese overcapacity. For the first time in its 87-year history, Volkswagen plans to close three German factories. On the other hand, amidst these slowdowns, the German Zeitenwende has spurred increases in defence spending. Meanwhile, the government still needs to pass a budget, for which Scholz is likely to solicit the support of the conservative opposition led by Friedrich Merz, head of the centre-right Christian Democratic Union (CDU). However, Merz’s cooperation remains conditional on the vote of confidence being held sooner.
Structural weaknesses including an ageing population, rising labour costs and heavy bureaucracy have contributed to the country’s economic woes.
Simultaneously, France, under President Emmanuel Macron has remained embroiled in its own political crisis, with three competing ideological blocs, including the radical left and far-right, dominating the French lower house of Parliament. Such political turmoil and weak leadership in Europe’s key centres of power amidst far-right political surges, a second potentially disruptive Trump presidency, and war still raging in Europe, exacerbates uncertainties. As Habeck warned, “This is the worst time for the government to fail.”
Rampant economic and political instability, coupled with the declining popularity of mainstream parties, has boosted support not only for the far-right but also the far-left, which has resulted in an increasingly fragmented German political landscape. Even before the coalition collapse, popularity ratings for all three partners had dropped (Scholz’s SPD was at 14-18 percent, the Greens at 9-12 percent and FDP at 3-5 percent, struggling to get even the minimum 5% vote to make it into parliament). On the other hand, the CDU-Christian Social Union(CSU) opposition alliance leads opinion polls at 33 percent, while the far-right Alternative for Germany (AfD) follows at 16-19 percent and the left-wing Sahra Wagenknecht Alliance (BSW) at 6-9 percent. The AfD, whose leader Alice Weidel deemed the coalition’s collapse a “liberation,” made significant gains in recent elections in Germany, even emerging victorious in the eastern state of Thuringia, becoming the first far-right party to govern a German state since the Second World War. Like in other parts of Europe, Scholz’s government is also guilty of succumbing to parts of the far-right agenda, with its new security measures on border control as a response to recent stabbings involving migrants.
Until the vote of confidence, the governance of the country may be on hold as Scholz presides over a lame-duck government that will be dependent on cobbled-together majorities to pass laws and make key decisions.
No party or alliance is expected to gain a complete majority following the elections. They will likely pave the way for another coalition government led by the CDU-CSU alliance and the SPD, with possible junior partners such as the FDP. Parties across the spectrum have expressed their unwillingness to work with the AfD. Yet, with the last German snap election held almost 20 years ago in 2005 and previous Chancellor Angela Merkel remaining in power for 16 years, the nature of German politics until now was traditionally stable.
Until the vote of confidence, the governance of the country may be on hold as Scholz presides over a lame-duck government that will be dependent on cobbled-together majorities to pass laws and make key decisions. However, a silver lining could emerge from the current crisis, depending on whether the new coalition would be a workable one or another messy concoction. From China policy to Ukraine support and economic reforms, disagreements within the traffic-light coalition often left the country politically paralysed on fundamental issues. A new more unified government could potentially reinstate German leadership in Europe and the world. Either way, it will be months before Germany has a new functional government.
Shairee Malhotra is the Deputy Director of the Strategic Studies Programme at the Observer Research Foundation
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Shairee Malhotra is Deputy Director - Strategic Studies Programme at the Observer Research Foundation. Her areas of work include Indian foreign policy with a focus on ...
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