Only A Transitional Government

After decades of apparent stability, Berlin has succumbed to political fragmentation and an adverse economic environment, and is now forced to contend with its post-Angela Merkel future. 

The so-called traffic-light coalition, consisting of the center-left Social Democrats (SPD), the Greens, and the liberal Free Democrats (FDP) had been plagued with infighting over government spending on climate initiatives, social welfare, and defense while debating whether to pause its debt brake. This provision, which limits the federal government to new debt at 0.35% of nominal gross domestic product per year, is embedded in the German constitution.

The coalition finally fell apart when SPD Chancellor Olaf Scholz ousted FDP Finance Minister Chrisitan Lindner after he challenged the governing partners with a paper on economic reform that was conveniently made public. Both men held competing press conferences to bitterly blame each other for the subsequent breakdown of their partnership. German voters sense that the coalition’s unraveling was carefully choreographed and, according to INSA, a political and market research group, 57% favor the end of the government.

Lindner has pinned his and the FDP’s fortunes on fiscal discipline and will not waver on the debt brake. The party is still haunted by being booted out of the Bundestag in 2013 by failing to meet the 5% threshold in that year’s general election and believes it needs to safeguard its future by holding to its principle of strict fiscal conservatism. Germany suspended the debt brake in the wake of the COVID-19 pandemic, and Lindner’s coalition partners argue that the country should suspend it again as Berlin faces extraordinary upheaval. Linder feels he will lose his base if he allows this.

Pressure has been mounting because Germany is still relying on a defunct operating model. High energy costs, especially following the imposition of sanctions on Russia, and a lack of skilled labor mean the German economy must adapt to a fundamentally different geo-economic situation. But policymakers are caught between propping up legacy industries and investing in new businesses. On top of that, Trump’s election victory does not bode well for a Germany that thrives on open markets and is dependent on US security as Europe’s largest land war since World War II continues to rage.

There were few options for a coalition government after Germany’s last federal election with the rise of the far-right Alternative for Germany. And fatigue with the previous “Grand Coalition” between the SPD and Merkel’s Chirstian Democrats was widespread, leading to a vacuum on the far left as well. The current situation, with a record number of parties now within the German political landscape, increases the chances for political instability. It is harder than ever to build viable governing majorities on the state and federal level.

The traffic-light coalition came in with good intentions and did compromise on many issues, but it was still not enough to survive an entire legislative period. Over the summer, the Greens party co-chair offhandedly called it a transitional government. The description was apt, since it will be remembered as a placeholder for the start of a vastly different, post-Merkel era.