Scholz Calls for Snap German Election as Coalition Collapses
(Bloomberg) -- German Chancellor Olaf Scholz called for a snap election after divisions over how to revive the lackluster economy triggered the breakup of his fractious three-party ruling coalition.
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The crisis came to a head with Scholz’s shock dismissal of Finance Minister Christian Lindner late Wednesday, saying that the chairman of the pro-business FDP party had refused a proposal to suspend rules limiting new government borrowing. Scholz called for a confidence vote in January, with a goal of pulling forward next year’s federal election to March from September.
The turmoil comes on the heels of the reelection of Donald Trump in the US, which has raised the prospect of a new transatlantic trade war and has forced a reassessment of Europe’s defense relationship with Washington. Germany is also struggling with a stagnating economy that has seen a lengthy retreat in its manufacturing sector.
Scholz’s highly unusual move, which comes after weeks of public bickering, represents a major risk for the 66-year-old Social Democrat. The last time his party moved to bring an election forward, in 2005, it led to Angela Merkel’s victory and her 16-year grip on the chancellery.
“Too often, the necessary compromises were drowned out by publicly staged disputes and loud ideological demands,” Scholz said in unusually pointed remarks, adding that Lindner is focused on the short-term survival of his own party. “Such egotism is completely incomprehensible.”
The euro declined slightly after the announcement, but the reaction paled in comparison to earlier losses on the back of Trump’s victory. Germany’s DAX Index futures edged 0.3% higher on Thursday morning, in line with Euro Stoxx 50 futures.
“The collapse of the German government coalition could not come at a worse time for Europe,” said Rajeev De Mello, chief investment officer at Gama Asset Management. “Europe needs to be able to negotiate with Donald Trump with one strong voice, which will be lacking at the start of the new US Administration.”
The conservative CDU/CSU alliance under Friedrich Merz is currently leading in opinion polls with more than 30% of the vote and would be in prime position to win an early ballot, restoring it to power after it lost to Scholz’s SPD three years ago.
Merz is due to make a statement to reporters after a meeting of the CDU/CSU caucus early Thursday morning in Berlin.
After Lindner’s firing, the FDP pulled its three other ministers from the government — Transport Minister Volker Wissing, Justice Minister Marco Buschmann and Education Minister Bettina Stark-Watzinger. Scholz is expected to announce as early as Thursday who will replace them until the election.
Scholz, who is due to meet European Union counterparts at an informal summit in Budapest on Friday, argued that Germany needs “more financial wiggle room” to deal with the difficulties it confronts.
“The situation is serious. There’s a war in Europe, increasing tensions in the Middle East, the economy is stagnating,” Scholz said. “Companies need support now.”
Germany’s economy has failed to mount a sustained rebound from the pandemic and war in Ukraine, with some economists predicting 2024 output to shrink for a second year in a row.
The main weakness is its important manufacturing sector, which is weighed down by soft foreign demand, high borrowing costs and a host of structural issues at home.
“Olaf Scholz has long since ceased to be interested in an agreement that is acceptable to all, but rather in a calculated breakup of this coalition,” Lindner said in a statement. “In doing so, he is leading Germany into a phase of uncertainty.”
German chancellors don’t have the power to call an early election, which lies with the federal president, but they can try to trigger one by deliberately losing a confidence vote in the lower house of parliament.
Once Scholz fails to garner a majority in the Jan. 15 ballot, he can ask President Frank-Walter Steinmeier, a former Social Democrat vice chancellor, to step in and dissolve parliament. The election would then have to be held within 60 days.
Scholz’s move is highly unusual in German politics since World War II. The national election was brought forward only twice in West Germany, in 1972 and 1983, and only once since reunification in 1990.
Former Chancellor Gerhard Schroeder, also a Social Democrat, triggered the early election in 2005 before losing to Merkel, who went on to run the country until Scholz took over.
Scholz and his ministers have presented a dysfunctional image in recent weeks, holding rival meetings with industry groups and labor officials and publishing conflicting policy papers resembling campaign manifestos.
A particular bone of contention was Lindner’s insistence on Germany sticking rigidly to rules limiting new borrowing. That irritated Scholz’s SPD and the Greens, who favor expanding debt to fund initiatives like tackling climate change and strengthening the military — and helping Ukraine defend itself against Russia.
As the EU seeks to forge a united response to the return of Trump and China’s increasing assertiveness, Scholz has often been singled out as the major obstacle, opposing efforts to leverage the bloc’s financial muscle with joint borrowing and increased spending on defense.
Some European officials had been resigned to the fact that the bloc wouldn’t be able to move ahead until after the German election in a year’s time, and Scholz’s decision potentially brings that forward by six months.
The FDP is currently polling as low as 3%, down from 11.5% in the 2021 national vote. That puts it in danger of missing the 5% threshold for getting into parliament.
Although the gap is likely to narrow, the latest opinion polls suggest that backing for Merz’s CDU/CSU is more than twice as high as support for Scholz’s party. The SPD is at about 16% in third place, behind the far-right Alternative for Germany in second with around 17%.
The Greens are at about 11% in fourth, while a new far-left party — the Alliance Sahra Wagenknecht — is fifth with roughly 8%.
“We will now quickly pave the way for new elections, so in the spring Germany will have to make a new decision on the next government constellation,” Greens Economy Minister Robert Habeck, who is also the vice chancellor, told reporters. “Until then, we are in office and we are firmly determined to fully fulfill the duties of the office.”
--With assistance from Alexander Weber, George Lei, Angela Cullen, Karin Matussek, Carolynn Look, Christoph Rauwald and Isolde MacDonogh.
(Updates with German DAX futures in sixth paragraph)
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