After Scholz's downfall, Germany finds itself at a crossroads

After dismissing his finance minister Christian Lindner in November, German Chancellor Olaf Scholz orchestrated his own downfall this week.

By losing a vote of confidence in the Bundestag (German parliament), Scholz was able to set the stage for early elections on February 23, 2025.

This political maneuver marks the end of Germany's 3-party "Streetlight Coalition" (Social-Democrats are branded red, Liberals yellow and the Greens …) and signals a pivotal moment for Europe's economic powerhouse.

The appetite for transformation comes to an end and public sentiment seems to prefer a rollback to “the good old days." The collapse of Scholz's government is a tale of ambitious reforms colliding with harsh realities.

Public support for the chancellor dropped due to poor communication, badly designed reforms, doing too much too quickly and most importantly the unresolved trade-off between the restrictions of the constitutional debt-brake and the need for massive investments in key areas like climate change, digitisation, infrastructure, education, energy and defense.

When Scholz's coalition took power in February of 2022, it promised nothing short of a national transformation: by the end of the term Germany would be a different country, the coalition partners pledged.

However, the Russia Ukraine war, some 10 days into the new term quickly derailed these plans, forcing the government into crisis management mode.

The sanctions against Russia caused energy shortages, inflation went up, supporting Ukraine came with high financial and political costs, and citizens started to fear the beginning of World War Three.

Waning public support

Now the country faces only its fourth snap election in its 75-year history. How did Germany get to this point?

As Scholz's three-party coalition struggled to implement its agenda, public support waned. Germans, traditionally cautious about rapid change and not prepared for the high costs, balked at poorly communicated reforms and their unforeseen consequences.

Every coalition member can be blamed for a series of communication mistakes. For his part, Scholz could not decide which weapon systems should be sent to Ukraine, vacillating between support and fear.

Vice-Chancellor Robert Habeck thought heating systems in private households would be low-hanging fruits to meet climate change targets.

But an early proposal of the law was leaked by the Liberals and tabloids crucified Habeck for being responsible for the "Heating-Hammer" that would financially ruin owners of gas and oil heating systems that had to be replaced by expensive heat pumps.

And the Liberals ruined Germany's reputation in European Union decision-making processes when they vetoed EU legislation at the end of years of formulating a compromise among 27 member states.

The government's top-down approach felt paternalistic to many, and the costs of transformation began to outweigh perceived benefits.

Economic woes

Internal strife also plagued the coalition. The leaders of the Social Democrats, Liberals, and Greens, Scholz, Lindner and Habeck, despite their initial demonstrated unity, found their differing worldviews and personalities increasingly at odds.

Lindner's ambition, in particular, created tension within the junior partner role. He also came across as a lobbyist for the business community and less as a servant of his country. External factors further complicated matters. Germany's export-driven economy took heavy hits from global supply chain disruptions, inflation, and energy crises.

This was partly caused by the Western sanctions against Russia, the wars in Ukraine and the Middle East, attacks against container ships by Houthi or Somali pirates at the Horn of Africa. But there were also still long-term effects from the pandemic that negatively affected globalisation.

These challenges exposed structural weaknesses in the German model, including an aging population, labour shortages and a lack of innovation especially in the backbone of the German industry, the car industry that did not manage the transition from combustion engines to electric vehicles.

The rise of populism has added another layer of complexity to Germany's political landscape. In uncertain times, extremist voices on both ends of the spectrum have found fertile ground, challenging Germany's post-war consensus on becoming a liberal, open society based on tolerance, equality and inclusivity.

On the extreme right end of the spectrum is Alternative for Germany (AfD). A nationalist, racist, anti-migration, "Germany first" party that operates according to the populist playbook, addressing emotions, spreading simplistic messages and aiming to undermine the functioning of the current political system.

On the other end is an educated Marxist, Dr. Sahra Wagenknecht. She is a former member of the East German Communist party, who founded her own movement that instantly won the position of a junior partner in two regional governments in East Germany.

She combines charismatic leadership with left socio-economic positions and nationalist rhetoric against migrants. Both extremist parties want a different political system and both are pro-Russia.

As Germany heads towards snap elections, voters face a stark choice between continuity and populists that question the core principles of the political system and play with people's fears.

The established parties, clustered in the centre, offer variations on familiar themes. They are all pro-European Union, Western oriented, critical towards Russia and committed to a social market economy.

In contrast, fringe parties on the far-right and far-left promise drastic shifts in policy, particularly in foreign affairs, migration policy, social benefits and economic management.

New government, same policies?

The most likely outcome in 2025 appears to be a reshuffling of the centrist deck. The conservative opposition is poised to gain, but not enough to govern alone. This scenario suggests that Germany's next government may look different but act similarly to its predecessors.

For the international community, this means Germany is likely to maintain its commitments to multilateralism, NATO, and the EU. However, hopes for bold moves towards deeper European integration or significant foreign policy shifts may be dashed.

The upcoming elections reflect a broader tension in German society between the need for change and the desire for stability. As external pressures mount – from a new US administration to global trade wars and security threats – Germany's next government may find itself forced to act more decisively than its cautious electorate might prefer.

In the end, Germany's political drama that will be performed in the coming two months of a very short election campaign serves as a microcosm of the challenges facing many Western democracies: how to navigate necessary changes without alienating a population wary of disruption.

The outcome of this balancing act will have repercussions far beyond Germany's borders, shaping the future of Europe and its role on the global stage.

The good news is that Germany is not in deep crisis and the election results will not lead to disruptive changes. A new composition of a coalition government is perfectly normal in a democracy if the demos want this. But the question remains: will this be enough to address the challenges ahead?