Collapse of Germany’s Ruling Coalition: The Nation Pays the Price of Its Policies

Germany’s automotive industry, once the hallmark of Europe’s largest economy, has taken a significant hit amid a broader political and economic crisis. Volkswagen, the country’s largest car manufacturer, recently announced plans for factory closures and layoffs—a stark reflection of Germany’s troubled future. Meanwhile, Chancellor Olaf Scholz’s dismissal of Finance Minister Christian Lindner, leader of the Free Democratic Party (FDP) and the smallest coalition partner, has led to the collapse of the ruling coalition. Many have viewed this decision as overdue, with Berlin’s press questioning why Scholz waited so long to confront the coalition’s ongoing internal conflicts and its failure to navigate the repercussions of its entanglement in the U.S.-led military and economic struggle against Russia.

The coalition led by Scholz was precarious from the outset, given the divergent ideologies of its member parties. After the 2021 election resulted in a fractured outcome, the Social Democratic Party (SPD) had to form a coalition with the Free Democrats (FDP) and the Green Party to secure the Bundestag’s support. The government was initially launched with optimism, despite the ideological differences among the coalition members. Scholz promised a progressive agenda that would bring a “new economic miracle” to Germany, driven by a green transition that would reinvigorate the European Union’s largest economy.

In the early months, these differences were managed through public spending: the SPD pushed for strengthening Germany’s welfare system, the Greens demanded radical climate actions, while the FDP insisted on avoiding new debt. However, this period of harmony abruptly ended with Russia’s invasion of Ukraine in February 2022. The government was forced to adapt to the loss of affordable Russian gas, long the backbone of Germany’s economic competitiveness and industrial exports.

Under pressure from the United States, Scholz’s administration joined a sweeping economic war against Russia, replacing Russian energy with costlier alternatives, reviving coal and extending the life of nuclear plants. Germany’s defense and foreign policy were also redirected, with substantial arms shipments and billions in aid to Ukraine. The government embarked on an enormous rearmament program aimed at transforming the German military from a defensive force to an offensive power—a shift led by U.S. directives.

With funds dwindling, the coalition’s unity in following Washington’s lead was no longer enough to mask its internal ideological rifts. Public frustration over the government’s shortcomings grew, with coalition parties suffering major losses in eastern Germany’s regional elections, as fringe populist parties from both the far-right and far-left gained ground. Following Donald Trump’s recent victory in the U.S. presidential election—accompanied by his vow to impose tariffs on European imports to reduce the U.S. trade deficit, a move that could hit German industries hard—Scholz finally broke his silence, addressing the ongoing ministerial discord. In a terse announcement last Wednesday, he dismissed Lindner, accusing him of prioritizing party interests over the country’s needs. Scholz referred to Lindner as “selfish” and “irresponsible,” and noted that their differences on how to restore Germany’s economic growth were irreconcilable. Scholz stated that he would call for a vote of confidence in his government in the Bundestag on January 15.

Last year, Germany’s constitutional court rejected Scholz’s budget proposal, citing its breach of constitutional debt limits, resulting in a significant financial gap. Coalition parties clashed over how to address it, with the SPD and Greens advocating for lifting debt caps to allow borrowing for aid to Ukraine, infrastructure, and rearmament. Lindner, however, opposed these moves, making cooperation increasingly untenable. Jörg Kukies, Scholz’s economic advisor, will succeed Lindner as finance minister. However, the conservative opposition, led by the Christian Democratic Union (CDU), dismissed Scholz’s proposed timeline, urging an immediate dissolution of parliament and calling for early elections. CDU leader Friedrich Merz warned that prolonged political instability would worsen Germany’s economic woes, questioning the logic of waiting until January 15, as it would delay any potential elections until March, which he argued was unsustainable for a government lacking a majority in Berlin.

Leading figures from German industry echoed the opposition’s stance, warning of the dangers of a political vacuum. Siegfried Russwurm, head of Germany’s largest business association, stated, “With recent global political changes—particularly after Trump’s election—and Germany’s worsening economic outlook, we need a new, effective government backed by a parliamentary majority as soon as possible.” Christian Sewing, CEO of Deutsche Bank, added, “Germany faces immense economic challenges, and every month of political limbo could mean a year of lost growth.”

However, Scholz’s aides indicated that he would adhere to the announced timeline for the confidence vote. Robert Habeck, co-leader of the Green Party and Scholz’s deputy, acknowledged the difficulty of passing legislation, including the 2025 budget, through the Bundestag in the interim. Following Trump’s victory and Lindner’s dismissal, Germany’s long-term borrowing costs reached their highest point in months. Even before Trump’s election, experts had predicted a contraction in Germany’s GDP for the second consecutive year in 2024, deepening a recession unseen since the early 2000s, compounded by significant challenges in strategic sectors such as automotive, chemicals, and engineering.