Political instability, economic woes stare at Germany  Premium

Germany's ruling coalition collapses amid economic challenges, raising questions about the country's future growth and stability.

On the day the U.S. elected Donald Trump as its 47th President, Germany’s ruling coalition of the centre-left Social Democrats (SPD), environmentalist Greens, and neo-liberal Free Democrats (FDP) dissolved after three years.

Chancellor Olaf Scholz sacked the Finance Minister Christian Lindner late in the evening on November 6 over budget-related disagreements that have riddled this 3-way coalition since last November. While the SPD and Greens are in favour of taking on more debt, FDP was insistent on increased taxes and spending cuts. Mr. Scholz called out Mr. Lindner for his ‘petty political tactics’.

“Finance Minister Lindner showed no willingness to implement any of our proposals,” said Mr. Scholz in a speech following the dismissal. He will now lead a minority government with the Greens as FDP has withdrawn all its leaders from the coalition.

The ruling government in Europe’s largest economy could not be collapsing at a more critical juncture – both geopolitically and economically.

The German economy has not been performing well and is looking at a second consecutive year of contraction. German Economy Minister Robert Habeck (Greens), announced on October 9 that the economy was expected to shrink by 0.2% this year. This is a downgrade from the 0.3% growth that was expected in April 2024, making Germany the only G-7 country to contract in 2024. This follows the predictions from major economic institutions in Germany.

The only positive news was that in Q3 of 2024, the German economy showed a 0.2% increase in GDP after a 0.3% contraction in the preceding quarter.

“The economy is proving more robust than previously forecast and the technical recession expected by many has failed to materialise,” noted Mr. Habeck.