Why the German government is on the brink
Published: Monday, Nov 4th 2024, 14:00
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The "traffic light" coalition is shaky. In the "autumn of decisions" proclaimed by the FDP, the "week of decisions" has begun - at least according to SPD leader Lars Klingbeil. A meeting of the coalition leaders on Wednesday evening could be key.
Before then, Chancellor Olaf Scholz (SPD), Finance Minister Christian Lindner (FDP) and Economics Minister Robert Habeck (Greens) want to consult with the three of them. What is at stake in the hiccup over economic and financial policy? And can the fractured alliance continue at all?
Who against whom?
Traditionally, everyone in the "traffic light" coalition (SPD, FDP, Greens) argues with everyone else. This is also reflected in the fact that Scholz, Habeck and Lindner have each made their own proposals on economic policy. At present, however, the SPD and Greens are mainly opposed to the FDP: Both have the smallest coalition partner under suspicion of working towards a "traffic light" exit. The current bone of contention is a policy paper by Lindner in which he calls for a change of direction in economic policy without prior agreement.
Is politics still taken seriously at all?
Partly, partly. The Federal Government, Bundestag and Bundesrat are continuing to work on legislation. Several bills are to be discussed in the cabinet this Wednesday. The "traffic light" coalition was also able to agree on the "security package" with tighter asylum policy and internal security.
However, cooperation has long been difficult. Disputes arise time and again when it comes to the fundamental political convictions of the coalition partners, such as on nuclear power two years ago or when it comes to what the state should spend money on. The give and take that is necessary in a coalition is becoming increasingly difficult for the SPD, Greens and FDP - especially since the Constitutional Court's budget ruling around a year ago, which left the government in dire financial straits. Most recently, the public dispute has revolved around three issues in particular, which Lindner said back in September would now have to be resolved: irregular migration, guidelines for economic policy and the federal budget.
What could happen on Wednesday?
On Wednesday, the coalition committee will meet with key members of the federal government as well as the parties and parliamentary groups in the coalition. If this group does not come to an agreement, the coalition has little chance of continuing until the regular election date at the end of September 2025. The question "Does everyone still have enough breath?" needs to be clarified, says Klingbeil. If there is no big bang for the time being, the wrangling could continue until the budget committee meeting on November 14, when MPs are due to finalize the budget for the coming year.
Why is the course of economic policy so controversial?
When it comes to economic policy, the different ideological views of the traffic light partners are clashing in the face of the economic downturn. Economics Minister Robert Habeck (Greens) has proposed a debt-financed sovereign wealth fund worth billions to promote investment by companies.
This is rejected by the FDP, which insists on compliance with the debt brake. The Liberals do not want "state fine-tuning", but rather relief for the entire breadth of the economy, including an immediate stop to all new regulations. Lindner is also in favor of replacing national climate targets with European ones. As a result, he believes that funding measures for replacing heating systems, for example, could be reduced or extended in time. Lindner wants a softening of climate protection targets, which is unlikely to be possible with the Greens.
Above all, the SPD wants to make a name for itself as a savior of industrial jobs. This could include measures worth billions to reduce grid fees and thus electricity costs, as well as new support measures to boost demand for electric cars. From the SPD's point of view, Lindner's call for the abolition of the solidarity surcharge, which has only been paid by top earners for some time, is a no-go.
What role does the household play?
The decisive factor is whether the coalition can still agree on a federal budget for the coming year. Gaps in the billions still need to be closed. On November 14, the budget committee is scheduled to meet to clarify the final issues.
With a view to the lowered economic forecast and the gloomy tax estimate, Lindner's paper states that the consolidation steps envisaged in the draft budget are not sufficient. Further cuts in state spending are necessary, for example the citizen's income.
Lindner is also in favor of not only postponing the subsidy for the chip company Intel, but eliminating it altogether. The funds previously earmarked for this, totaling 10 billion euros, could flow into the core budget. So far, the funds have been tied up in the Climate and Transformation Fund, a special pot. The struggling Intel Group had postponed the construction of a plant in Magdeburg, which Germany wanted to support.
In order to ease the burden on companies, the FDP wants to take the first steps towards a complete abolition of the solidarity surcharge and a reduction in corporation tax. One thing is clear: this would cost billions.
What would happen after the end of the "traffic lights"?
If there is no agreement on a budget, from January only those expenditures will be made for which there is a legal obligation. Funding decisions for projects, on the other hand, would be put on hold for the time being. The work of the Bundestag's two committees of inquiry - on the evacuation from Afghanistan and the nuclear phase-out - would also come to an early end. This could lead to early elections to the Bundestag in March. The regular election date would not be until the end of September.
What would be the path to new elections?
Should the FDP allow the "traffic light" to collapse, it is conceivable that the SPD and Greens could continue in a minority government until the regular election date on September 28. However, there is no experience of this at federal level. It is much more likely that Chancellor Scholz will seek to bring forward the election. To this end, he could call a vote of confidence in the Bundestag, as Gerhard Schröder (SPD) last did in 2005 - with the intention of not winning. At the suggestion of the Chancellor, Federal President Frank-Walter Steinmeier could then dissolve the Bundestag within 21 days in accordance with Article 68 of the Basic Law. According to Article 39, a new election would have to be held within 60 days. The German parliament cannot dissolve itself.
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