Germany’s Ruling Coalition Teeters on the Brink of Collapse
The fragile alliance between Chancellor Olaf Scholz’s Social Democratic Party (SPD), the Greens, and the Free Democratic Party (FDP) is facing its greatest challenge yet. Deepening divisions over economic and budget policies have sparked concerns about the stability of the three-year-old coalition.
A Slow-Burning Crisis
According to Carsten Brzeski, global head of macro at ING, “German politics seem to have become a train crash in slow motion.” The coalition partners are acting as if they are preparing to campaign against each other soon, with each party holding separate meetings and proposing conflicting policy plans.
Escalating Tensions
Finance Minister Christian Lindner’s recent paper on reviving the struggling German economy has been criticized by the SPD and Greens, who see it as an attack on their key policies. The tone of the paper has been described as confrontational, highlighting the increasingly cold atmosphere between the coalition partners.
Budget Disputes
A major point of contention is Germany’s budget for 2025, which remains unfinished and plagued by a funding gap of several billion euros. With a mid-November deadline looming, the coalition must make difficult decisions under intense time pressure.
Scenarios for Change
If the coalition cannot agree on fiscal and reform priorities, the government may fall apart. Possible scenarios include the FDP exiting the coalition, leading to a brief period of minority government followed by snap elections early next year. Alternatively, a minority government could continue until the scheduled election date later in 2025.
Uncertain Future
The latest polls suggest that the FDP would struggle to secure seats in the German Bundestag, while the SPD and Greens would also suffer losses. The opposition party CDU would be the likeliest to secure the biggest share of votes. According to Holger Schmieding, chief economist at Berenberg, “snap elections are not yet the most likely scenario, but they are quite possible.”
Risk of Collapse
ING’s Brzeski notes that the risk of the German government collapsing has never been higher. Even potential geopolitical uncertainty stemming from the upcoming US elections no longer seems to be enough to keep the government together. As the situation continues to unfold, one thing is clear: the future of Germany’s ruling coalition hangs in the balance.
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