Red Light:

Just a day after Donald Trump’s decisive U.S. presidential win, German Chancellor Olaf Scholz ushered in the end of his own government with the firing of his finance minister and coalition partner, Christian Lindner. Lindner, representing the pro-business Free Democratic Party (FDP), objected strongly to a 2025 draft budget in which the other coalition members, Scholz’s center-left Social Democratic Party (SPD) and the Greens, increased social spending. The FDP’s insistence on adhering to Germany’s debt brake, a constitutional provision that limits annual structural deficits to 0.35% of GDP, created friction among the three coalition partners in the wake of a 2023 constitutional court ruling that prohibited unused COVID-19 relief funds from financing other projects. The decision blew a $65 billion hole in the budget for 2024. But the final straw for the deeply unpopular coalition was a leaked policy paper in which Lindner outlined tax cuts and spending reductions, both of which negated a coalition agreement reached only a few weeks earlier. Subsequent revelations from an internal FDP document, controversially entitled “D-Day Scenarios and Measures”, showed the party had been planning to undermine the government in which it played a key role.

The new D-Day never came to pass, as Lindner’s firing meant the end of FDP participation in the traffic-light, or “Ampel”, coalition, so named for the red, yellow and green that represented the three governing parties. The FDP’s departure left an SPD-Green minority in power and triggered a December 16 vote of confidence on the Scholz government. The chancellor, as expected, lost that vote, 349-207, with 116 abstentions, meaning snap elections for February 23, 2025. The center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), will likely win that race. Polls show them outpacing other parties with support from about 31.5% of the electorate. A CDU/CSU victory almost guarantees the former’s party leader, Friedrich Merz, the chancellorship despite his relative unpopularity. Fewer than half of voters think he is a good candidate for the office.

Short of a majority, the conservatives will need a partner for a new coalition government. Who that may be is the big question. The likely answer is the SPD, which would recreate the “Grand Coalition” that ruled from 2005 to 2009 and from 2013 to 2021 with Angela Merkel at the helm. Whether Scholz, who remains his party’s chancellor candidate despite the popularity of his defense minister, Boris Pistorius, would be willing to be Merz’s deputy after having held highest office is unclear.

Meanwhile, the architects of the political upheaval, the FDP, are polling below 5%, which threatens its ability to pass the threshold needed to remain in the Bundestag. The Greens, which have governed successfully alongside the CDU at the state level, are an unlikely coalition partner given limited national policy cohesion beyond support for Ukraine. The Sahra Wagenknecht Alliance (BSW), an eponymous economically liberal yet socially conservative party founded earlier this year by the former Left Party star, is in a similar situation. The CDU and BSW will soon rule together with the SPD in an unwieldy coalition in the eastern state of Thuringia, but national-level cooperation is difficult to envision. As for cooperation with the far-right Alternative for Germany (AfD), Merz is a proponent of the unofficial firewall between them despite being criticized for suggesting collaboration on the local level.

This leaves the SPD as the most likely (if least exciting) option, as the electorate seeks a return to stability after the unsuccessful Ampel experiment. Grand Coalitions may not always be cohesive, but they have experience governing. The two parties are expected to garner a parliamentary majority, allowing them to avoid the evident complexities of a third partner.

The next German government, regardless of its composition, will face considerable domestic and international challenges. War in Ukraine continues to rage and, with a second Trump administration’s continued U.S. support for Kyiv uncertain, Germany may need to further increase its assistance. Timing, however, is poor. The German economy is flagging as corporate stalwarts such as Volkswagen announce layoffs and factory closures. The high cost of living, increasingly unaffordable rent prices, and an overdue pension reform all call for more social spending in a time of budgetary belt-tightening. No matter the electoral outcome, Germany’s next coalition is on a collision course.

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