Chancellor Olaf Scholz dismissed his finance minister on Wednesday, effectively dissolving his three-party ruling coalition and creating instability within his center-left government. This decision comes at a time when Europe faces new economic and security challenges following the election of Donald J. Trump in the United States.
During an impromptu news conference, Mr. Scholz expressed regret over the difficult decision, emphasizing the growing uncertainty in the current climate. He affirmed his intention to continue governing until the end of the year and to seek a confidence vote in Parliament in January, which he may not win, potentially leading to early elections in March.
The political turmoil in Berlin exacerbates the European Union's challenges, as France grapples with a deadlocked Parliament and Russia makes significant advances in Ukraine. Additionally, the prospect of a trade war with the United States and a weakening NATO alliance looms, further complicating the situation as Germany, the EU's most populous country, faces political instability.
The coalition's collapse followed a breakdown in communication among the leaders of the three parties—Scholz’s Social Democrats, the Greens, and the Free Democrats—over disputes regarding the federal budget. Tensions were evident during a press conference where Mr. Lindner criticized Mr. Scholz's economic growth proposals as uninspired.
Mr. Scholz countered that Mr. Lindner had acted irresponsibly by refusing to compromise. The coalition, which has been in power since 2021, was characterized by its uneasy alliance, being the first three-party coalition in Germany since the early 1960s, contributing to its instability.
The coalition's dissolution marks a significant shift for Germany, traditionally known for its political stability, as populist parties on both the far right and left gain traction in a fragmented political landscape. Speculation about the coalition's collapse intensified after a leaked position paper from Mr. Lindner that challenged the fiscal policies of his left-leaning partners.
Despite efforts from Mr. Scholz and Economy Minister Robert Habeck to maintain the coalition, the heart of the dispute centered around a €10 billion budget shortfall for 2025. Mr. Habeck had attempted to appease Mr. Lindner with financial incentives related to a planned Intel factory.
Following the dismissal, Mr. Scholz announced that his Social Democrats would govern with the Green Party as a minority government until at least the end of the year, requiring case-by-case parliamentary majorities to pass legislation. On certain issues, such as aid to Ukraine and military rebuilding, they may find support from the opposition Christian Democrats.
Experts warn that a minority government could lead to instability for Germany and its European partners, as the country is a key player in the EU budget. The Christian Democratic Union, currently leading in opinion polls, has called for an end to the unstable government.
The Scholz coalition had aimed to signal a new beginning after the Merkel era, successfully addressing urgent issues early in its term. However, a recent court ruling necessitating budget cuts has led to internal strife among coalition partners.
The final breakdown occurs against the backdrop of a stagnant German economy, projected to contract by 0.2 percent in 2024, marking a second consecutive year of stagnation. Volkswagen, Germany's largest industrial employer, is also facing significant challenges, including potential job cuts and factory closures.
With Mr. Lindner's departure, he appears to be positioning himself for the upcoming election, as his Free Democratic Party struggles to maintain support above the 5 percent threshold required for parliamentary representation.