Germany in crisis: Scholz’s coalition falls apart, snap elections expected

Germany entered a period of political uncertainty on Thursday after its fragile three-party ruling coalition collapsed on the same day Donald Trump won the US election.

Chancellor Olaf Scholz — who announced a January confidence vote, likely followed by snap elections in March — will seek to reassure his European partners at a summit in Budapest.

Scholz said late on Wednesday he would reach out to conservative opposition leader Friedrich Merz, who is leading in opinion polls, for support in passing crucial bills on the economy and defence.

The end of his fractious three-way coalition, which deprives him of a governing majority, could not have come at a worse time for Europe's biggest economy, which is set to shrink for a second year in a row.

"The early end of the coalition leaves Germany somewhat rudderless in what could be an exceptionally turbulent time right after Donald Trump won the US election," wrote Berenberg bank analyst Holger Schmieding.

But Schmieding said a snap election and new leadership in early 2025 may ultimately help as "the constant bickering within the now-defunct three-party coalition had turned into a major obstacle to growth".

Scholz heads to an EU summit in Budapest on Thursday to discuss multiple global crises, chiefly Ukraine's war with Russia and the Middle East conflict, all impacted by the looming change in the White House.

EU leaders are gathering for the talks hosted by Hungarian Prime Minister Viktor Orban, one of the EU's main sceptics of support for Kiev.

'Petty political tactics'

After months of bitter infighting, the three-way coalition between Scholz's Social Democrats (SPD), the Greens and the business-friendly Free Democrats (FDP) finally broke apart on Wednesday night.

In a shock power move, Scholz sacked his troublesome finance minister Christian Lindner, forcing the FDP out of the coalition and leaving the SPD and the Greens ruling in a precarious minority government.

The German chancellor said he would seek a vote of confidence by January 15 so lawmakers can decide whether to call early elections which could be held six months earlier than a previously scheduled September vote.

Until then, the minority government will only be able to pass some laws, on a case-by-case basis, if it wins opposition backing.

Scholz had strong words for Lindner on Wednesday, declaring there was no longer any "basis of trust" between them.

He bitterly attacked the ousted finance minister for his "petty political tactics" and accused him of a level of egoism that is "completely incomprehensible".

The FDP, the smallest party in the coalition, had long disagreed with the SPD and the Greens on a range of issues, most strikingly how to carve up a tight budget and jumpstart the troubled German economy.

Lindner had repeatedly flirted with bolting the unhappy coalition and warned of "an autumn of decisions" as a deadline loomed for difficult fiscal negotiations next week.

Scholz declared that "we now need clarity on how we can soundly finance our security and defence in the coming years without jeopardising the cohesion of the country".

"With a view to the election in America, this is perhaps more urgent than ever."