Germany is bracing for political upheaval, with Chancellor Olaf Scholz set to govern in a weakened position after firing his finance minister in a dramatic collapse of his coalition. Scholz now faces a critical confidence vote in January, which could force snap elections by March and leave Europe’s largest economy without a stable leadership amid global uncertainties.
The collapse of Scholz's coalition government – which included his Social Democrats, the Greens and the Free Democrats (FDP) – follows months of infighting over budget policy and Germany’s economic direction.
Scholz now intends to lead a minority government with the Greens, relying on temporary parliamentary alliances to pass key legislation.
To shore up support, Scholz said he would seek the backing of opposition leader Friedrich Merz of the conservative CDU, which has been gaining in the polls.
"We need a government that is able to act, that has the strength to make the necessary decisions for our country," Scholz said on Wednesday, accusing the FDP's Christian Lindner of putting party interests first.
Scholz dismissed Lindner for obstructing budget agreements, calling his actions “selfish” at a time of major global developments.
Uncertainty in Europe
The coalition’s collapse adds a new layer of uncertainty for Europe, especially following Republican Donald Trump’s US election victory on Tuesday.
European leaders now face renewed pressure to present a united response to global issues, with Germany’s instability further complicating matters.
"The coalition’s early end leaves Germany somewhat rudderless in what could be an exceptionally turbulent time," wrote Berenberg bank analyst Holger Schmieding, though he suggested that early elections in 2025 could offer fresh leadership and stability.
Divisions remain within Europe on issues like potential new US tariffs, Russia’s war in Ukraine, and NATO’s future. With France also in political flux following recent elections, both of the EU’s largest economies face internal challenges that could slow efforts to deepen the bloc’s integration.
Scholz will attend an EU summit in Budapest on Thursday to address multiple global crises, including the conflicts in Ukraine and the Middle East. The summit, hosted by Hungarian Prime Minister Viktor Orban, a known Trump ally and one of the EU’s main sceptics on support for Kyiv, could be tense.
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Tensions and policy disputes
The crisis comes at a pivotal time for Germany, which faces economic stagnation, outdated infrastructure, and military unpreparedness. Political upheaval could drive further frustration with mainstream parties, fuelling support for populist movements like the anti-immigrant AfD.
Months of coalition disagreement over Germany’s economic rescue strategies laid the groundwork for this crisis. Scholz has advocated for capping energy costs to keep Germany attractive to businesses, particularly to support the ailing auto industry. He also proposed expanding aid to Ukraine.
The FDP pushed back, calling for spending cuts, tax reductions and a slower transition to a carbon-neutral economy. After his dismissal, Lindner claimed Scholz had pressured him to breach the "debt brake" – a constitutional cap on federal borrowing set at 0.35 percent of GDP.
Sources close to Scholz revealed that he had proposed raising Germany’s Ukraine aid from 3 billion euros to 15 billion euros by suspending this limit.
“Olaf Scholz refuses to recognise that our country needs a new economic model,” Lindner said. "Olaf Scholz has shown he doesn’t have the strength to give his country a new boost."
The three other FDP ministers – of transport, justice and education – resigned in solidarity.
Economy Minister Robert Habeck of the Greens expressed regret over the collapse, saying the coalition failed to resolve next year’s budget funding gap. "Tonight feels wrong and doesn’t feel right. It’s almost tragic on a day like today, when Germany needs to show unity and capacity for action in Europe."
The political crisis now raises the possibility of a left-right "grand coalition" between the SPD and CDU.
