What does the end of the traffic lights mean?
Published: Wednesday, Nov 6th 2024, 23:20
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The quarrelling coalition is at an end. After a dramatic meeting of the coalition leaders, Chancellor Olaf Scholz (SPD) dismisses Finance Minister Christian Lindner (FDP). The background to this is a bitter dispute over economic and budgetary policy. Early elections are now to be held in March.
In the evening, Scholz settled accounts with Lindner in an almost unprecedented manner. There was no basis of trust for further cooperation. He had made offers for a package to strengthen the location and adopt the 2025 budget. Lindner had rejected the proposals. He was acting irresponsibly, pursuing selfish goals and only had the FDP clientele in mind.
What happens next?
Scholz wants to put important laws that cannot be delayed to a vote in the Bundestag by the end of the year. He mentioned, for example, the reduction of so-called "cold progression" so that citizens have more net from gross, the stabilization of pensions and immediate measures for industry. He will seek talks with CDU leader Friedrich Merz.
On January 15, Scholz wants to put forward a vote of confidence in the Bundestag - in the expectation that parliament will not give him a vote of confidence, i.e. that he will not receive a majority. In this case, the Chancellor can ask the Federal President to dissolve the Bundestag. Scholz said that the Bundestag could clear the way for early elections. These could take place by the end of March at the latest
The big question now is what will become of the 2025 federal budget. There is no longer a majority for this. It is considered unlikely that the CDU/CSU coalition will now secure a majority. If no budget is passed, a so-called provisional budget would apply from January. For the time being, only expenditure that is necessary to maintain the administration and fulfill legal obligations will be possible. In practice, however, the Ministry of Finance can authorize the ministries to use a percentage of the funds in the draft budget that has not yet been adopted each month.
What are the reasons for the end?
In a paper on an "economic turnaround", Lindner proposed a complete reorientation of economic and climate policy in some areas. The paper calls for immediate measures such as the permanent abolition of the solidarity surcharge, including for high earners, an immediate stop to all new regulations and a change of course in climate policy. National climate targets should be replaced by European ones. This met with considerable resistance from the SPD and the Greens.
Scholz said that Lindner had ultimately and publicly called for a fundamentally different policy - a tax cut worth billions for a few top earners and at the same time pension cuts for all pensioners. "That is not decent," said the Chancellor.
Another controversial issue was how to close the billion-euro gap in the 2025 budget. Scholz proposed an exception to the debt brake with a view to the consequences of the war in Ukraine. The FDP rejected this.
Why were there always arguments?
The governing coalition, which started 2021 as a "progressive coalition", had repeatedly had sharp and public disputes. Examples: the long struggle over the heating law, basic child protection, migration policy, the pension package and the budget. The "traffic light" coalition has certainly had some successes. For example, the deep energy price crisis following the Russian war of aggression against Ukraine was overcome, the German armed forces were supported with 100 billion euros and the expansion of renewable energies from wind and sun picked up noticeably.
However, tensions have increasingly arisen, especially since the Constitutional Court's budget ruling around a year ago, which left the government in dire financial straits. In the face of the economic slump, the differing ideological views of the traffic light partners clashed in particular on economic policy. The SPD and Greens wanted a reform of the debt brake in order to increase investment, which the FDP rejected.
What does the end of the traffic light mean for Germany's role in the world?
Donald Trump's victory in the US presidential election poses enormous challenges for Germany and Europe - for example in terms of security policy, trade policy and climate policy. Western support for Ukraine in its fight against the Russian war of aggression could become dramatic. It is precisely in this important phase that Germany is failing as an "anchor of stability". Against the backdrop of the global political crises, Economics Minister and Vice Chancellor Robert Habeck (Greens) warned: "This is the worst time for the government to fail."
The President of the Kiel Institute for the World Economy, Moritz Schularick, wrote on Platform X of perhaps the most difficult moment in the history of the Federal Republic of Germany. "In addition to the internal structural crisis, there are now massive foreign trade and security policy challenges for which we are not prepared." Germany must invest massively in European defense capacities in the short term and lead the way with France and other willing partners.
Defense Minister Boris Pistorius (SPD) has already called for more money for the Bundeswehr, pointing to Russia's rapid rearmament under Vladimir Putin. "Russian industry produces more weapons and ammunition in three months than the entire European Union does in a year. And we have to expect that Putin is willing and ready to use his armed forces," Pistorius told dpa.
What does the end mean for the economy?
The end of the traffic light is also a setback for the German economy. The second year of recession in a row is expected for 2024. Germany is lagging behind other major economies. Uncertainty prevails among companies and private households. Companies are holding back on investments and citizens are putting their money away. This is unlikely to change for the time being.
Business associations had called on the traffic light to introduce comprehensive reforms - and quickly. The most important points: energy prices, which are high by international standards, must fall, bureaucracy must be reduced and the partly dilapidated infrastructure must be brought up to scratch.
Following the failure of the traffic light system, the economic situation threatens to deteriorate further. The economy may not gain momentum in the coming year either.
©Keystone/SDA
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