Follow us on social

Olaf Scholz

Economic woes collapse Germany’s governing coalition

The Ukraine war's shadow looms large, affecting manufacturing and energy prices

Analysis | Europe

Divisions among the members of Germany’s fractious and unpopular governing coalition have reached a breaking point over the proposed budget for 2025. The conflict exposed the starkly different economic policy outlooks of the junior coalition parties — Greens and Liberals (FDP) — with the Social Democrat (SPD) Chancellor Olaf Scholz attempting furiously to mediate a compromise.

After an inconclusive make-or-break meeting on November 6 with the two feuding ministers — Finance Minister Christian Lindner (FDP) and Economics Minister Robert Habeck (Greens) — Scholz announced the firing of Lindner and the collapse of the governing coalition. A caretaker government of SPD and Greens would continue in power through December, with a vote of confidence in January and new elections in March.

The stubborn persistence until now of this much unloved coalition almost certainly reflected the reluctance of all three parties to face what could be a harsh reckoning in early elections, which, if the coalition had survived, would have been held next September.

All three parties have seen their already shaky public support weaken as this recent crisis became more public and more bitter than antecedent quarrels. The coalition parties nevertheless were widely expected to avoid a disruptive breach just as Europeans begin to weigh the implications of the U.S. presidential election results.

Christian Lindner’s pro-business FDP is now polling nationally at about 3%, below the threshold for winning party list seats in the Bundestag. He has been a strong defender of the so-called debt brake, constraining the public sector deficit to no more than 3% of GDP. In a highly irregular move, he leaked last weekend a policy paper offering his own sharply divergent ideas on economic policy, without consultation with partners.

He may have calculated that the FDP had little to lose by provoking the collapse of the coalition and early elections, and to obliquely signal interest in an eventual coalition with the Christian Democrats, who have a commanding lead in opinion polls.

The power struggle has arisen from the imperative to address voters’ concerns about the bleak economic situation, stemming in part from the economic consequences of the war in Ukraine, including higher energy prices and the costs of military and financial support for Ukraine.

Economy minister Habeck recently projected that the economy would contract in 2024 by 0.2%, a downward adjustment from the previous forecast. Germany’s economic malaise is not unique in Europe. There is low public support across Europe for the leadership of mainstream parties and a rise of populist-nationalist challengers, as seen in the European parliament elections in June and in elections in Germany’s eastern states in September.

The most recent phase of slow growth or recession for Germany began in late 2021 and affects core industrial sectors including chemicals and steel, both of which are energy intensive and have not been able to adjust fully to higher prices for natural gas, formerly imported from Russia. The other troubled sector is Germany’s flagship exporting automotive industry. The weakness of this sector can be directly related to the challenge of Chinese electric vehicles both in China’s domestic market and in Europe.

The announcement by Volkswagen in October of its intention to close three plants in Germany and to shed thousands of jobs was a first in the company’s history and contributed to the political crisis. The powerful IG Metall labor union representing the VW workforce and a major part of the SPD’s political base, vowed to resist the planned closures, as did the government and opposition in the state of Lower Saxony, which owns one fifth of VW shares.

In September, the U.S. company Intel announced it would postpone, for at least two years, a planned €30 billion investment in a chip production facility in Magdeburg, aimed in particular to supplying Germany’s automotive industry’s modernization. This project would also have boosted economic development in the former East Germany.

Scholz’s uncharacteristically bold move to jettison Lindner and bring elections forward is clearly aimed at restoring the electoral appeal of his own party and that of the Greens who will remain in a caretaker government until elections in March. The support for the coalition as a whole has suffered in part because of frequent disagreements and paralysis. The three parties’ combined support is only about 30% of the electorate by the most recent polls. The Christian Democrats (CDU-CSU) have more than 30% by themselves, but would still have to find coalition partners in order to form a governing majority.

The two most dynamic political parties are the populist right Alternative for Germany (AfD) and the populist left Sahra Wagenknecht Alliance (BSW), both of which derive some of their appeal from their opposition to the further support for Ukraine. Opponents of the European elites’ stance on Ukraine have performed well in Germany and France, and elsewhere in Europe.

The weakness of the incumbent government and of the mainstream opposition CDU limits Germany’s capacity to launch any diplomatic initiative that could end the war in Ukraine or to help formulate a concerted European approach to security arrangements to include Ukraine in the post-conflict period.


Top image credit: Federal President Frank-Walter Steinmeier (M) hands Christian Lindner (r/FDP), former Federal Minister of Finance, his certificate of dismissal at Bellevue Palace. Federal Chancellor Olaf Scholz (SPD) looks on.
Analysis | Europe
Trump Putin
Top image credit: President Donald Trump and Russian president Vladimir Putin participate in a joint press conference in Anchorage, Alaska, Friday, August 15, 2025. (Official White House Photo by Daniel Torok)

Could bioweapons be center of gravity for US-Russia talks?

Latest

The deep freeze in U.S.-Russia relations shows occasional, promising cracks. It happened recently not on the primary issue of conflict — the war on Ukraine — but on a matter of mutual survival. During the United Nations General Assembly President Donald Trump announced an initiative to address one of arms control's most intractable problems: verifying compliance with the Biological Weapons Convention (BWC).

"To prevent potential disasters, I'm announcing today that my administration will lead an international effort to enforce the biological weapons convention by pioneering an AI verification system that everyone can trust,” Trump said. He framed this as an urgent priority, claiming "many countries are continuing extremely risky research into bioweapons and man-made pathogens."

The proposal found immediate endorsement in Moscow. Russian presidential spokesman Dmitry Peskov offered unusually direct support, calling the initiative "brilliant in itself" and declaring that "Moscow supports it." Crucially, Peskov proposed concrete next steps, suggesting the U.S. proposal should be negotiated and formally codified in international agreements.

keep readingShow less
Donald Trump Africa trade
Top photo credit: global shipping (Shutterstock/APChanel); Donald Trump (Wirestock Creators/Shutterstock)

Trump's surprising swing in favor of sweeping 'duty free' Africa trade

Africa

In an unexpected move, the Trump administration has announced publicly that it supports renewing the African Growth and Opportunity Act (AGOA) for one year, and is interested in considering entering discussions on the long-term renewal of AGOA.

AGOA, which expired on September 30, was originally passed by Congress in 2000 and signed into law by President Bill Clinton. The legislation allows sub-Saharan African countries duty-free access to American markets, and gives the U.S. president the power to suspend countries that he believes fail to meet AGOA’s requirements, particularly as they relate to governance issues, human rights standards, and a failure to provide American companies beneficial access to African markets. It was last renewed in 2015.

keep readingShow less
Nigeria
Top image credit: A U.S. Army soldier (2R) trains Nigerian Army soldiers at a military compound in Jaji, Nigeria, February 14, 2018. To match Special Report NIGERIA-MILITARY/INTERNATIONAL Capt. James Sheehan/U.S. Army/Handout via REUTERS

US arming Nigeria is becoming a crime against humanity

Africa

The very week the United States’ Defense Security Cooperation Agency notified Congress of a $346 million arms sale to Nigeria, the U.S. State Department also released its 2024 Country report on human rights practices in the West African country.

The report, which has previously affected the country’s eligibility for security assistance, confirmed what civil society groups have been saying for years: that the security forces of Nigeria, Washington’s most significant ally in Sub-Saharan Africa, habitually operate with impunity and without due regard for human rights protection — a key condition for receiving U.S. security cooperation.

keep readingShow less

LATEST

QIOSK

Newsletter

Subscribe now to our weekly round-up and don't miss a beat with your favorite RS contributors and reporters, as well as staff analysis, opinion, and news promoting a positive, non-partisan vision of U.S. foreign policy.